Key equity transfer of State-owned financial firms ignites investor sentiment

The A-share market rose on Monday morning as news that Central Huijin Investment, an arm of China's sovereign wealth fund, is set to take control of four major State-owned financial institutions, further strengthening investor sentiment.

The move, according to analysts, will enhance the ability of State-owned distressed asset managers to resolve risks and improve the performance of the so-called "national team" — a group of State-backed financial institutions acting as a stabilizer of the stock market — to better perform its role, while igniting hopes of potential mergers among relevant investment banks.

On Friday, three State-owned bad debt managers — China Cinda Asset Management, China Orient Asset Management and China Great Wall Asset Management — along with China Securities Finance Corp, which provides margin financing to securities firms and supports the national team, announced that their controlling shareholder, the Ministry of Finance, will transfer its shares to Central Huijin Investment at no cost.

The announcements caused relevant stocks to surge on Monday, as Dongxing Securities, a subsidiary of China Orient Asset Management, went up 5.91 percent on Monday morning while Cinda Securities rose 8.99 percent.

The benchmark Shanghai Composite Index also edged up 0.06 percent, reaching 3348.85 points, while the ChiNext Index, which tracks China's Nasdaq-style board of growth enterprises, went up 0.61 percent to 2228.8 points.

This equity transfer marks a step in implementing the 2023 institutional reform plan, which calls for the separation of market-oriented entities managed by central financial regulatory authorities. As part of this reform, the Ministry of Finance will shift its focus from management to a supervisory role.

"The centralized and market-oriented management of asset management companies by Central Huijin would enhance the efficiency of State-owned financial capital allocation and strengthen risk control capabilities," said a CITIC Securities report.

With China Securities Finance also included in the equity adjustment, the "national team" is expected to achieve better coordination in making unified actions, the report said.

Following the equity transfers, Central Huijin will control six securities firms, including China International Capital Corp, China Galaxy Securities, Shenwan Hongyuan Securities, Cinda Securities, Dongxing Securities and Great Wall Glory Securities, said Shu Siqin, an analyst at Sinolink Securities.

"This has increased expectations for mergers and acquisitions. It is worth paying attention to the potential consolidation opportunities among these securities firms," Shu said in a report.