Unexpected moves by China’s State Administration of Foreign Exchange (Safe) into domestic equities have raised questions about its motivations, with some saying the reserves manager is pulling back from some overseas investments.

A Hong Kong fund industry executive told AsianInvestor that the reserve manager was withdrawing from some foreign mandates and had been putting money into onshore renminbi assets since last September. 

Shanghai-based consultancy Z-Ben Advisors estimated that Safe, part of the People’s Bank of China (PBoC), had $230 billion in offshore mandates as of end-2014, representing 7.4% of its $3.1 trillion reserves portfolio.

While central banks are known to have bought stocks as part of monetary easing policies, Safe’s allocation to equities still came as a surprise to market observers. Whereas the Bank of Japan and the European Central Bank expanded their balance sheets to buy onshore assets, the Chinese institution has used its foreign reserves to do so.

One question is whether such investments are simply part of Beijing’s short-term interventions as a result of stock market and currency volatility, or will be an ongoing allocation.

“I do believe Safe’s investment will continue, and it’s not just a flash in the pan for the purposes of supporting the equity market,” said Jonathan Ha, chief executive at Red Pulse, a Shanghai-based research firm.

Safe’s onshore investment platform – Wutongshu – made its first appearance on the list of top 10 shareholders of mainland listed stocks in the fourth quarter of 2015. Wutongshu and its two Beijing-based subsidiaries – Fengshan Investments and Kunteng Investments – have invested a total of Rmb29.5 billion ($4.6 billion) in mainland shares as of March 31.

These are mainly in Chinese bank stocks, such as Bank of China, Bank of Communications, Industrial and Commercial Bank of China and Shanghai Pudong Development Bank.

Most of these allocations are likely to have been made in the fourth quarter of 2015, as the three entities did not make disclosures in the third quarter, and Fengshan and Kunteng were only set up last August.

While the allocation is small relative to Safe’s $3.2 trillion of foreign reserves, industry observers have questioned why it wants onshore renminbi exposure.

Some, such as a Hong Kong-based investment consultant, argued that the intention was to defend the currency, not to support the onshore equity market.

But it was likely a move to support both the renminbi and local stocks, said Alex Wolf, emerging-markets economist at UK-based Standard Life Investments.

“It could be about supporting the currency instead of purely about supporting domestic equities,” he noted, but if the PBoC wanted to support domestic equities, it could simply use its balance sheet to do so.

Whatever Safe's motivation, it is hardly likely that Safe would pull back significantly from foreign investments, give its sheer size and need for diversification. It has a number of international offices that it set up with this in mind, in locations such as Hong Kong, Frankfurt, London, New York and Singapore.

Safe has invested in some 70 countries and regions, 30 currencies, 50 asset classes and products and 6,000 investment targets globally.

The institution did not respond to several requests for comment.