(Bloomberg) -- China’s stock market rebounded following a historic selloff on Monday, as a group of state-linked funds known as the national team scooped up assets and the central bank promised loans to help stabilize the market.
The Hang Seng China Enterprises Index closed up 2.3%, giving investors a reprieve after it capped its worst day since the financial crisis. The onshore CSI 300 Index, which had dropped more than 7% the day before, ended 1.7% higher.
Officials and executives unveiled a series of moves to calm nerves. State-backed investors announced they were buying stocks and exchange-traded funds. Companies promised buybacks. Regulators loosened rules on insurers’ investments. The central bank eased its grip on the currency, and pledged more lending to help a sovereign fund load up on shares.
That was enough to address the slide, at least for now — but investors are bracing themselves for a prolonged period of tensions. After China retaliated against US tariffs by matching the increase in levies, Donald Trump threatened to impose another 50% tariff on China if it doesn’t back down. Beijing said Tuesday it would “fight until the end.”
“As far as US and China goes, we are well and truly into the game of chicken,” said Peter Kim, an investment strategist at KB Securities Co. “Trump has made his move and China has retaliated rather than choosing the path of compromise and it’s now up to which country is going to blink first. That’s very dangerous.”
The market stumbled during afternoon trading, after two influential bloggers posted a list of measures authorities are mulling to hit back at the latest tariff threats from Trump. Hong Kong’s Hang Seng Index, which had also been higher in the morning, briefly moved into negative territory before ending the day 1.5% higher.
National Team Support
Beijing’s attempt to address the market turmoil is a contrast to the response of officials in the US, where stocks have also been rocked by fears over a growing trade conflict behind the world’s two largest economies. While US President Donald Trump has largely shrugged off the market impact, Beijing has pulled out all the stops to ease the pain.
A basket of eight exchange-traded funds favored by China’s sovereign wealth fund, widely regarded as a proxy for the national team, saw a record inflow on Monday. These funds had a combined turnover of 105 billion yuan ($14.3 billion) on Tuesday, beating volumes from the previous session.
State-backed funds said they were loading up on stocks. Among the latest to join the chorus was China’s Social Security Fund, which pledged to keep buying onshore shares, adding to its recent purchases.
Companies announced a flurry of share buybacks that totaled at least 30 billion yuan ($4.1 billion), and more are expected to follow suit after an appeal by the regulator for state assets. Regulators also said they will lift the limit for insurance companies’ equity investments, allowing them to buy more shares.
Beijing sent other signals. Chinese President Xi Jinping called for efforts to “fully unleash” consumption to offset the damage of tariffs, state-run broadcaster China Central Television reported on Monday. The central bank eased its grip on the currency, something that could help the economy if it becomes a long-term policy.
“China has many levers to actually input in the economy,” said Fabiana Fedeli, global chief investment officer for equities, multi asset and sustainability at M&G Investments. “We believe we’ll see more stimulus and so we still like domestic names. We just have to hope that at some point there’s going to be a reprieve in the relationship with the US. That would be very important.”
The central bank said early Tuesday that it “firmly supports“ Central Huijin Investment Ltd. increasing its holdings of stock market index funds and will provide sufficient re-lending support to the firm when necessary.
--With assistance from Joanne Wong.
(Updates throughout.)