China's benchmark CSI 300 index entered a bear market on Thursday after declining for 10 straight weeks, reaching 4,060.19 at the morning break. The benchmark stands approximately 20% below its June peak and is down 13.94% from its January 1 level as fading stimulus expectations, weak corporate earnings, and global artificial intelligence trade concerns weigh on investor confidence.
Key Takeaways
- CSI 300 fell to 4,060.19, marking a 20% decline from its June high after 10 consecutive weeks of losses.
- Central Huijin has reinvested only $43 billion of the $231 billion raised through H1 ETF sales, leaving $188 billion unused.
- Asian equity markets slid broadly, with South Korea's KOSPI dropping 2.56% to 5,588.94 and Japan's Nikkei 225 losing 1.65% to 63,554.76.
- Gulf-led sovereign wealth funds deployed $14.2 billion into mainland China and Hong Kong through September, up from $4.9 billion in 2025.
Policy Stagnation and State Support Limits
Despite third-quarter GDP growing 4.5% and exceeding forecasts, Chinese policymakers have refrained from introducing aggressive new monetary policy measures. On Tuesday, China maintained its one-year loan prime rate (LPR) at 3.0% and five-year LPR at 3.5%, leaving both benchmarks unchanged for 17 consecutive months. Analysts at Maybank noted that stable economic growth has reduced the immediate urge for aggressive central bank action.
Market intervention by state funds has also proven insufficient to reverse the downtrend. Central Huijin, which leads China's market stabilization efforts, generated $231 billion by selling exchange-traded funds (ETFs) during the first half of the year. However, Bloomberg Intelligence estimates indicate that Central Huijin has reinvested only about $43 billion since July, leaving $188 billion available. Analysts warned that state ETF buying alone cannot sustain a prolonged market recovery, especially as broader global headwinds weigh on financial assets, similar to how S&P 500 weakness affects broader asset classes.
Selling Pressure Spreads Across Asian Hubs
Equity declines extended beyond mainland China on Thursday. South Korea's KOSPI slipped 2.56% by midday to 5,588.94, down from its previous close of 5,735.66. The regional contraction reflects persistent economic adjustments across major markets, following events where the Bank of Korea held its rate at 3.00%. Japan's Nikkei 225 dropped 1.65% to 63,554.76, while Taiwan's TAIEX fell 1.15% to 46,346.92.
In Hong Kong, a tracker of major Chinese companies listed in the city fell up to 2.9% on Thursday. The Hang Seng Tech Index touched a two-year low on Tuesday following a pullback in AI hardware stocks. Corporate earnings hit individual equities hard, with Tencent slipping below HK$400 and battery manufacturer CATL dropping on decelerating profit growth and intense price competition.
Sovereign Wealth Funds Seek Long-Term Value
While public equity markets declined, long-term sovereign investors increased capital deployment into China. Data from Global SWF shows sovereign wealth funds invested $14.2 billion into mainland China and Hong Kong through September, nearly tripling the $4.9 billion recorded across all of 2025.
Saudi Arabia's Public Investment Fund (PIF) led the influx with $6 billion, as four Gulf-based funds generated nearly 70% of total sovereign inflows. Prominent transactions included securing a minority stake in Luckin Coffee and participating in Alibaba's $10.2 billion share sale. Andrew Wang, head of consumer investments at Mubadala's private equity unit, highlighted low market valuations, stating that 'valuations are lower than they have been in years' and calling it a strong vintage for investors. Still, China's total remained smaller than sovereign capital allocations to the US ($132.4 billion) or Europe and the UK ($44.6 billion).
Why It Matters
The CSI 300 entering a bear market underscores that state liquidity management cannot substitute for broader structural policy easing when corporate earnings weaken. With Central Huijin retaining $188 billion in reserve, institutional traders remain cautious until explicit fiscal backing emerges. Watch whether persistent regional equity weakness causes institutional capital to pivot away from Asian equities toward digital assets or alternative global fixed-income markets.
