PBoC turns on the fire hose for stocks
New lending facilities from the central bank (PBoC) could potentially inject RMB 2.4 trillion into China’s stock markets.
ICYMI: On Tuesday, the PBoC announced it will launch two new lending facilities to support A-share valuations: a swap facility and a new relending facility.
Under the swap facility, insurers, securities brokerages, and fund management companies can swap their holdings of bonds, exchange traded funds (ETFs), and stocks included in the CSI 300 for treasury bonds and central bank bills from the PBoC.
- They must then use those highly liquid assets to acquire funding to buy stocks.
The PBoC will initially lend up to RMB 500 billion worth of assets under the facility.
- If it proves successful, the PBoC will lend an additional RMB 500 billion, and potentially another RMB 500 billion after that.
Under the relending facility, the PBoC will lend funds to banks at an interest rate of 1.75%.
- The banks will then lend those funds at 2.25% to listed companies and their major shareholders for them to fund share buybacks.
The initial quota for the facility is RMB 300 billion but will be increased to RMB 600 billion and even RMB 900 billion if it proves successful.
Get smart: These two programs could inject a lot of additional funds into China’s stock markets.
- However, that depends on how enthusiastically the market embraces them.
Get smarter: This year, regulators have mostly avoided propping up stock prices directly.
- But with the market going from bad to worse, authorities are no longer sitting back.