Last night we warned that as a result of the ongoing rout in Chinese capital markets, the CSI 1000 index had tumbled just shy of the key 5180 level which would knock-in (i.e., trigger) over 30 billion yuan ($4.2 billion) in snowball derivatives products tied to the Index, which would in turn unleash a selling cascade and could spark a wholesale market crash.

Well, it seems that Beijing also read the warning, because just minutes later Chinese equity indexes rebounded furiously in afternoon trading, with a volume explosion in some major ETF, a hallmark of aggressive buying by state funds - i.e., China's Plunge Protection Team - who stepped in to halt the slide.

As shown in the chart below, the total traded value of the Huatai-Pinebridge CSI 300 ETF surged to 15.3 billion yuan ($2.1 billion) on Thursday, the highest since 2015 as the National Team made its presence known, while those for Harvest CSI 300 Index ETF and E Fund CSI 300 ETF also saw extraordinary spikes. That coincided with gains in the CSI 300 benchmark of mainland shares, which closed 1.4% higher after declining as much as 1.8%.

During previous market slumps, state funds were suspected to be behind surges in turnover of such ETFs as they stepped in to rescue the market. For instance, Central Huijin Investment Ltd., a sovereign wealth fund, bought an undisclosed amount of ETFs in October and vowed to keep increasing its holdings.

"The national team is likely stepping to stabilize the market as they have done in previous market crashes," said Marvin Chen, a strategist at Bloomberg Intelligence.