Chinese stocks experienced a slight uptick on Thursday as investors anticipated a weekend press briefing from the country’s finance minister. The move follows the central bank’s introduction of a facility aimed at facilitating stock purchases.
The benchmark CSI 300 index rose by 1% after a sharp decline of 7% on Wednesday, marking its first loss in 11 consecutive sessions. Similarly, Hong Kong’s Hang Seng index climbed 3% after enduring its worst daily loss since 2008 earlier in the week.
Since the Chinese government unveiled a stimulus package aimed at boosting economic confidence, the CSI 300 has surged over 30% since late September. However, this week, the rally appeared to lose momentum as investors began to question the effectiveness of the government’s economic and capital market plans.
Richard Tang, a China strategist and head of research for Hong Kong at Julius Baer, remarked, “The past two weeks have seen a ‘buy everything China-related’ trend.” After several days of significant profit-taking, Tang noted that the offshore market seems to be entering a second phase of the rally, characterized by slower gains and increased volatility, with a renewed focus on earnings and valuations.
The modest recovery on Thursday followed Beijing’s announcement of a press briefing scheduled for Saturday with Finance Minister Lan Fo’an, which has sparked expectations of further stimulus measures from the government. “The market is certainly looking for hints of more policy support coming,” stated Jason Lui, head of Asia-Pacific equities and derivatives strategy at BNP Paribas.
In a related development, China’s central bank advanced a new scheme allowing domestic financial firms to increase their stock purchases. This initiative aims to stabilize the market and enhance liquidity.
The facility permits non-bank financial companies to borrow from the People’s Bank of China (PBoC) for equity purchases, using bonds, stocks, or exchange-traded funds as collateral. The PBoC has begun accepting applications from eligible securities groups, funds, and insurance companies to pledge ETFs, bonds, or constituent shares of the CSI 300 index in exchange for more liquid assets, such as sovereign bonds and central bank notes. The funds raised through this facility must be invested in the stock market, according to the central bank.
The Rmb 500 billion (approximately $70 billion) tool has the potential to expand depending on market conditions, with the PBoC stating it is designed to “enhance inherent stability” and “promote healthy development” in capital markets. Experts noted that this tool resembles the US Federal Reserve’s Term Securities Lending Facility, which allows dealers to borrow liquid assets, including Treasuries, by pledging illiquid collateral, a mechanism initially created during the 2008 financial crisis and revived during the pandemic in 2020.
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