Chinese stocks rebound from worst sell-off in 10 years as state support speculation mounts

China’s stocks rebounded from their worst sell-off in ten years in October, driven by speculation that Beijing would step in to halt the rout. The CSI 300 Index, which measures China’s largest listed companies, rose 0.3 per cent to 3,997.76 by 9.36am local time. The Star Market 50 Index, primarily composed of the nation's leading chipmakers, gained 0.6 per cent.

Speculation has heightened that China may strengthen a 300 billion yuan (US$45.1 billion) relending facility, introduced in 2024 as part of a market stabilization package.

The People's Bank of China is set to convene a meeting on Monday with regulators from the stock market and financial sectors to bolster the programme that finances stock buy-backs by listed companies and key shareholders. This development follows a severe decline in China's yuan-denominated stocks last month, with the CSI 300 falling 8.5 per cent, marking its most significant monthly loss since the aftermath of the 2015 stock market crash, and entering a bear market.

A fragile recovery in the domestic economy, coupled with the unwinding of leveraged artificial intelligence investments, contributed to the market turmoil. Stephen Innes, a managing partner at SPI Asset Management, explained that Beijing's willingness to intervene in the equity rout appears to be growing, particularly as the AI trade is under global pressure.

However, it remains uncertain whether additional state-backed buying can restore genuine investor confidence. If China's "national team" of state buyers does step in, investors should keep a close eye on official policy announcements and the potential for a market exit.

Speculation suggests that China's state buyers, known as "the national team," may have purchased at least 170 billion yuan of exchange-traded funds tracking key equity indices in October to prevent further declines. State-backed investment entities, China Reform Holdings and China Chengtong Holdings Group, could receive up to 100 billion yuan each in relending for equity repurchases from a major state bank, according to local media reports.

The turmoil in US stocks may further complicate China's efforts to stabilize its own market. The Nasdaq-100 Index dropped 3.5 per cent on Friday, officially entering a correction after a 10 per cent slide from its record high. Investors are concerned about the returns on US$750 billion invested in AI infrastructure this year, as the massive capital expenditures may be eroding profits from existing businesses and reducing cash flows for hyperscalers.