The Shanghai-trade China 50 ETF, the world’s largest passive fund tracking Chinese stocks, is experiencing its highest rate of capital inflows since the volatile periods of 2015 when China’s National Team were suspected to have played a decisive role in restoring confidence.
The fund has received about $1.19 billion in October so far, despite a dismal time for the Shanghai bourse. Evaporating confidence in Chinese equities has led to one of the worst months for the market since early 2016.
A similar wave of inflows has flooded into other Chinese large-cap funds such as the China CSI 500 ETF and the Hong Kong-traded CSOP FTSE China A50 ETF.
The Chinese government is well-established when it comes to intervening in its capital markets. Sources told Bloomberg that during this past week Beijing has upped its purchases of large-cap stocks.
“The national team might be switching gear to passive investment,” said Shanghai-based fund manager Dai Ming. Whereas seeking active returns involves “market noise and systemic risks as some investors bet the national team will always be there to prop up stocks,” passive funds have the potential to “not only smooth out market volatility but also save them from the moral risk.”