China stocks edge higher as reports of market support lift sentiment

Hopes of policy support lift Chinese equities, but liquidity concerns keep investors cautious.

The blue-chip CSI300 Index gained around 0.5% in early trade, recovering marginally after plunging 8.5% in October, its worst monthly performance in more than a decade, as a selloff in technology stocks hurt investor sentiment. The Shanghai Composite Index advanced 0.3%.

According to Reuters, China's central bank and securities regulator were scheduled to meet brokerages and fund managers on Monday to discuss policy tools to support capital markets, the 21st Century Business Herald reported.

Separately, the official Shanghai Securities News reported that the People's Bank of China (PBOC), the National Financial Regulatory Administration, the China Securities Regulatory Commission and major banks would discuss ways to optimise relending facilities for share buybacks and purchases.

The reports provided some support to investor sentiment amid expectations that policymakers could introduce measures to stabilise the equity market following October's sharp losses.

However, concerns surrounding Zhuhai Huafa Group continued to remain a drag on market sentiment. Shares of the state-backed conglomerate's listed units, including Huafa Properties, Advanced Fibre and Weiyue Group, extended their declines in early trade on Monday.

Investors have been monitoring the group after reports last week that it had failed to repay two maturing trust products and was seeking extensions on some bank loans. The developments have raised concerns about liquidity risks and their potential spillover into China's financial markets.

The pressure has also spread to bond funds, with exchange-traded funds tracking bonds facing selling pressure following signs of heavy redemptions on Friday.

A listed fund investing in 30-year Chinese government bonds fell 0.3% in early trade on Monday, after declining nearly 1% in the previous session.

According to Reuters, hedge fund manager iFund Asset Management said in a client note that liquidity pressures surrounding Huafa had spilt over into bond funds, forcing some funds to trade at discounts.

Meanwhile, UBS economist Yu Song said the likelihood of a broad-based stimulus package similar to the one announced in September 2024 remained low, suggesting that investors may have to temper expectations of aggressive policy support.