China's 'National Team' Significantly Reduces ETF Holdings in Q1

China's "national team" has shifted from its previous one-sided support logic in the first quarter of this year. According to Bloomberg and fund reports for the first quarter, Central Huijin and its affiliated institutions, as the core entities of sovereign wealth funds, have significantly reduced their holdings in several mainstream exchange-traded funds (ETFs). This move signifies the regulatory focus has shifted from "entering the market to rescue" last year to "moderating overheating."

The quarterly report data of several flagship broad-based ETFs show that Central Huijin's shareholding ratio has dropped below the 20% disclosure threshold. Taking the largest Huatai Bosera CSI 300 ETF as an example, Central Huijin's two entities held a combined share ratio of over 82% at the end of last year. However, as of the end of the first quarter, no single investor in the fund holds more than 20%. Since regulations only require disclosure of shareholders with a ratio above 20%, this implies that Central Huijin's reduction in holdings may have approached 50% during the first quarter.

Similar scale reduction has also occurred in the E Fund CSI 300 ETF, Huaxia Shanghai Securities 50 ETF, and several Zhongzheng 1000 ETFs. Morgan Stanley estimates that the national team sold positions worth about 80 billion US dollars from January to February this year.

The primary purpose of this operation is to recoup funds and suppress market speculation, especially in the context of rapid expansion in the valuation of the technology sector. Based on the increase in the CSI 300 index from its low point last year to its high point in January this year, the profit margin for some reduction operations may reach 50%.

Market analysis suggests this shift implies that the national team is playing a dual role as a "market stabilizer," not just pursuing one-way buying, but by buying low and selling high to smooth out fluctuations. Currently, the national team has a large amount of cash reserves, which provides ample financial security for re-entering the market if systemic risks emerge in the future. Morgan Stanley analyst Laura Wang estimates that these recovered funds may be invested in more strategically significant and thematic ETFs in the future.

Detailed institutional holding details and the list of the top ten shareholders will have to wait for the semi-annual fund report to be disclosed in the third quarter. Current indications show that Beijing is more willing to withdraw liquidity to eliminate market bubbles rather than maintain high valuations without limits.