(Bloomberg) -- Chinese equities rallied as Beijing stepped up its efforts to stem a rout with a string of policy announcements including a state fund’s vow to boost stock purchases.

The onshore benchmark CSI 300 Index climbed as much as 2.8% on Tuesday, offering a reprieve to investors who have had to grapple with wild market swings over the past two sessions. The Hang Seng China Enterprises Index of major Chinese companies listed in Hong Kong jumped more than 4%. 

Hopes are also building for more concerted efforts to boost shares as regulators plan to brief President Xi Jinping on market as soon as Tuesday. Stocks started the day higher as Central Huijin Investment Ltd., the unit that holds Chinese government stakes in big financial institutions, said it will continue to increase holdings of exchange-traded funds. That was soon followed by the securities regulator pledging to make greater efforts in guiding long-term funds to enter the market.

“Huijin’s announcement will guide and encourage more funds to buy and also confirms the market speculation on more state buying recently,” said Zhou Nan, investment director at Long Hui Fund Management. “There’s very limited room for further slide but the market may continue to fluctuate before the bottom can be solidified.”

The upswing comes after Chinese shares suffered devastating losses, with the CSI 300 closing at a five-year low on Friday. Traders were grappling to find a bottom for this rout as economic and geopolitical risks kept piling up, while authorities have so far failed to confirm a much-anticipated stock rescue fund.  

Policymakers have been more vocal in expressing market support lately, but concrete measures have been lacking. The securities watchdog vowed this week to punish those behind “malicious” short selling and to stop illegal behavior that hinders stable stock market operations. Authorities are also seeking to address risks stemming from margin calls and share pledges.  

A more proactive stance from regulators is drawing comparisons with the steps taken during the 2015 rout, when they curbed speculative trading, targeted market manipulation and guided some investors to avoid stock sales. Yet equities back then took months to eventually bottom out, and peaked at a much lower level than the 2015 high — foreboding a tough battle ahead for Beijing this time around.

“We have been there before in 2015-early 2016, facing similar challenges such as economic slowdown and deleveraging which froze market sentiment,” said Linda Lam, head of equity advisory for North Asia at Union Bancaire Privée. “Looking back, it wasn’t a V-shape market recovery that was materialised within days. It will take time, in terms of months, for investors to gain back confidence.”   

Read more: Xi Set to Discuss China Stock Market With Financial Regulators

Buying by state-backed funds had been keenly watched by investors as the selloff deepened this year. The total amount of inflows into a handful of ETFs tracking key gauges rose to a record in January and was more than five times the aggregate amount seen in July 2015, when the so-called national team jumped in to stem a rout.

This is the first time since October that Central Huijin, a unit of the $1.4 trillion wealth fund China Investment Corp., said it is buying more ETFs. The most-purchased ETFs year to date include large-cap focused ones such as the Huatai-Pinebridge CSI 300 and E Fund CSI 300, as well as the E Fund ChiNext Price Index ETF and the ChinaAMC CSI Science and Technology Innovation Board 50 ETF.

China is also tightening trading restrictions on domestic institutional investors as well as some offshore units, Bloomberg News reported, as policymakers look to arrest the market swoon that’s seen the CSI 300 Index tumble more than 40% from a February 2021 peak. Officials this week imposed caps on some brokerages’ cross-border total return swaps with clients, limiting a channel that can be used by China-based investors to short Hong Kong stocks.

The national team has bought roughly 70 billion yuan ($9.7 billion) of onshore Chinese shares in the past month, according to estimates by Goldman Sachs Group Inc., which didn’t give details on how it arrived at the numbers.

“The expansion of scope of ETF buying may also suggest that it expanded to smaller cap ETFs like CSI 500 or CSI 1000,” said Willer Chen, an analyst at Forsyth Barr Asia. “Long term wise, reform and policy would be the most important to support the market ultimately. All in all it is all about macro recovery and stability.” 

GF CSI 1000 ETF, which tracks small-cap index CSI 1000, saw its trading volume surge to a record high on Tuesday. 

--With assistance from Olivia Tam, Charlotte Yang and Felix Tam.

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