China’s US$3.5 trillion stock sell-off seen nearing end, as share buy-backs, buying by fund managers indicate recovery

Share buy-backs by mainland-traded companies, historically an indicator of rising stock prices, are up 86 per cent this year

This week at least 26 asset-management firms have unveiled plans to invest a combined US$249 million in their own funds

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Pedestrians in the Lujiazui Financial District in Shanghai on October 10, 2022. Photo: Bloomberg

Published: 3:45pm, 20 Oct 2022Updated: 3:51pm, 20 Oct 2022

A sell-off of China stocks that has erased US$3.5 trillion of market value this year may be nearing its end, based on a number of sentiment gauges including share buy-backs, self-investment by fund managers and attractive valuations.

The average combined valuation of companies in the CSI 300 Index has cheapened to about 6 per cent below the 10-year average after the benchmark slumped to near a two-year low. A weakening offshore yuan, growing concerns about China’s economic slowdown and faster rate increases in the US all roiled markets on Thursday.

However, several signs hint the market is near its bottom.

Corporate stock repurchases in 2022 have surpassed any annual volume in local market history, according to China International Capital Corp (CICC). Meanwhile, asset managers including giants E Fund Management and Southern Asset Management have been pouring their own money into fund products. At the same time, the ratio of onshore listed companies trading at a discount to their net-asset value is close to the level during the global financial crisis in 2008.

Some 403 mainland-listed companies were trading below their book value as of Wednesday, according to Bloomberg data. Photo: Bloomberg

“With the risk premium around its record high, stock valuations are very attractive generally,” said HSBC Jintrust Fund Management in a quarterly strategy report on Wednesday. “That points to a good time for allocations of [yuan-traded] A shares. The risk appetite is expected to pick up in the fourth quarter, alongside the economy and corporate earnings.”