Chinese stocks bounce back from bear market on suspected state support

Chinese stocks rebounded significantly on Friday after a sharp sell-off earlier in the week had driven the benchmark index into a bear market. Trading volumes in major exchange-traded funds (ETFs) surged, suggesting possible state buying and a response from major companies in the artificial intelligence sector. The CSI 300 Index rose 1.7 percent to 4,105.33 at the close, reversing an earlier decline of up to 2 percent.

Several key ETFs tracking the gauge saw unprecedented turnover, indicating potential state-backed intervention to stabilize the market. Among them, the CSI 300 ETF managed by E Fund Management recorded 19.5 billion yuan in turnover, its busiest trading day since October 9, 2024. Technology stocks led the rebound, with the ChiNext 50 index rallying 4.3 percent after several optical transceiver manufacturers reassured investors about their operations, and one unveiled a share buy-back plan.

The Star Market 50 index, which tracks major chipmakers, surged 3 percent. The dramatic turn-around highlighted the substantial influence of government intervention on China's stock market, which Beijing sees as a key funding source for its tech self-reliance strategy. The China Securities Regulatory Commission had previously signaled that more supportive measures could be introduced if stocks faced further pressure.

Analysts noted that investors should closely watch whether state-backed fund inflows can be sustained, as ETF flows remain an important leading indicator. If persistent big inflows into equity ETFs occur, there is a chance the market could bottom out by the end of October. Companies in the optical transceiver sector reported strong demand for their products and fully utilized capacity.

Eoptolink Technology announced plans to repurchase up to 1 billion yuan worth of shares, reflecting investor confidence. The previous week's market weakness was partly attributed to selling by major shareholders seeking to raise funds for taxes on offshore trusts ahead of the 90-day grace period expiring.