China is pumping money into stocks and markets are loving it

Chinese stocks staged their biggest rally in years Tuesday, after the country’s sovereign wealth fund said it would step up buying shares as officials scramble to draw a line under a three-year market rout.

The Shanghai Composite, mainland China’s benchmark index for large state-owned companies and blue-chip stocks, ended up 3.2% on Tuesday, ending a six-day losing streak. It marks the biggest daily increase since March 2022.

Smaller companies did even better. The Shenzhen Component Index rose 6.2%. It was the index’s best daily gain since September 2015, while startup index ChiNext had its best performance in seven years, soaring 6.7%.

In Hong Kong, the Hang Seng Index surged 4%, the biggest percentage gain in more than six months. Chinese tech shares led the way. Alibaba Group (BABA), which is due to announce earnings on Wednesday, was up 7.6%.

The positive mood spilled over to Europe, where the region’s benchmark Stoxx 600 index opened about 0.5% higher, before trimming those early gains to stand 0.1% up by 5.44 a.m. ET. US stock futures were mixed.

The rebound in Chinese stocks came after Beijing stepped up its efforts to prop up the ailing stock market, which had a dire 2023 and has been the worst performer in the world so far this year.

By Monday, about $6.1 trillion in market value had been wiped from the Chinese and Hong Kong stock markets since their recent peaks in February 2021.

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Central Huijin Investment, the equity arm of state-owned China Investment Corp, announced Tuesday that it had recently expanded its holdings of exchange-traded funds (ETFs) on mainland stock markets.

“We will continue to increase our holdings and expand our holdings to resolutely maintain the stable operations of the capital market,” it said in a statement.

Shortly after the announcement, the China Securities Regulatory Commission issued a statement saying it “firmly supports” Central Huijin Investment in its plan to continue to increase the scale of its holdings.