CSI 300 Falls 8.5% in October as Investors Await Chinese Stock Support
Key Facts
The CSI 300 lost about 8.5% in October, its worst monthly performance since early 2016, The Straits Times reported, citing Reuters. The newspaper said China’s central bank and regulatory agencies would meet major banks on Nov. 2 to discuss improving a relending policy designed to finance share buybacks and increases in holdings. The report did not establish that the meeting had taken place by the time it was published, and talk of expanding the facility remained speculative. The news followed a month of sharp losses in Chinese stocks, putting potential support measures at the forefront of investors’ attention. In morning trading on Nov. 2, the index rose as speculation grew about an expansion of existing financing.
The CSI 300 rose 1.3% to 4,035.72 points at the midday break on Nov. 2, the South China Morning Post reported. The STAR 50 index gained 3%, while the ChiNext index rose more than 3%, the newspaper said. The gains followed reports of planned meetings between the central bank, regulators and major banks. Coverage linked the market’s move to speculation about an expansion of the 300 billion yuan relending facility. Authorities announced the facility in 2024 to support financing for share buybacks and increases in holdings, while reports did not say that any increase in its size had been announced.
Under a Chinese government announcement dated Sept. 24, 2024, the initial size of the relending facility was set at 300 billion yuan, with an interest rate of 1.75% on financing to commercial banks, which could lend to their clients at 2.25%. The program provided loans to listed companies and their major shareholders to finance share buybacks and increases in their holdings. A regulatory notice issued on Oct. 17 of the same year then made the facility available through 21 national financial institutions. The notice said the central bank would provide relending equal to 100% of the principal of eligible loans. Those terms form the framework of the existing program at the center of the speculation, while reports contained no official announcement of increased financing or changes to its terms.
The stock decline coincided with China’s manufacturing purchasing managers’ index falling to 49.3% in October, down 0.8 percentage points from the previous month, according to the National Bureau of Statistics. The reading had returned to expansion territory in September at 50.1%, up 0.3 percentage points from the previous month. October’s breakdown showed differences by company size: the index stood at 50.2% for large companies, compared with 48.4% for medium-sized firms and 47.5% for small firms. The bureau’s chief statistician said some orders had been placed ahead of the National Day holiday, alongside a complex and volatile international environment, factors associated with the decline in the index. The figures put October’s reading below 50, after the index had entered expansion territory the previous month.
Among manufacturing components, the production index was 49.8% in October, down 1.9 percentage points from the previous month, while the new orders index was 49.4%, a decline of 1.1 percentage points, according to the National Bureau of Statistics. The data showed continued expansion in high-tech manufacturing, at 51.3%, and equipment manufacturing, at 50.6%. By contrast, the consumer goods sector registered 48.8%, while the index for energy-intensive industries was 47.3%. The readings show divergent conditions across manufacturing, with activity in high-tech and equipment industries remaining above 50 while the consumer goods and energy-intensive sectors were below that level. The bureau attributed the broader manufacturing decline to some demand being brought forward ahead of the holiday and volatility in the international environment.
Weak readings extended to activity outside manufacturing, with the non-manufacturing business activity index at 49.7% in October, down 0.5 percentage points from September, according to the National Bureau of Statistics. The composite PMI output index also registered 49.7%, down 1 percentage point from the previous month. The monthly figures show both indexes declining from September, as October’s stock losses coincided with weaker activity indicators. Huang Yan, a fund manager at Shanghai Qiuyang Capital, said support measures could “drive a market rebound near the end of the year.” But he cautioned that “a policy-made bottom may not be the market bottom,” while The Straits Times reported that state-backed buying measures had not been enough by then to halt the stock decline, amid a weak economy and concerns over elevated valuations of technology companies.