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Chinese stocks rose on Thursday in volatile trading ahead of a weekend press briefing from the country’s finance minister, as the central bank launched a facility to make it easier to buy stocks.
The benchmark CSI 300 index rose almost 3 per cent on Thursday after closing down 7 per cent on Wednesday in its first loss in 11 consecutive sessions. Hong Kong’s Hang Seng index was up 4.2 per cent after posting its worst daily loss since 2008 on Tuesday and falling further on Wednesday.
The CSI 300 has surged by more than 30 per cent since late September after the Chinese government unveiled a stimulus package to revive economic confidence. The rally started to fade this week as investors began to question the government’s plan to boost the economy and its capital markets.
“Buy everything China-related was what we observed over the past two weeks,” said Richard Tang, China strategist and head of research Hong Kong at Julius Baer. “But after a few days of heavy profit-taking, the offshore market is to move on to the second phase of the rally, which features slower gains, higher volatility but with the basics — earnings and valuations — back in focus.”
Chinese equities rebounded on Thursday after Beijing announced a Saturday press briefing with finance minister Lan Fo’an, fuelling expectations that the government would announce more stimulus measures.
“The market is certainly looking for hints of more policy support coming”, said Jason Lui, head of Asia-Pacific equities and derivatives strategy at BNP Paribas.
China’s central bank on Thursday moved forward with a scheme to enable domestic financial companies to buy more stocks, a tool designed to stabilise the market and shore up liquidity.
The facility allows non-bank financial companies to borrow from the People’s Bank of China to buy equities, with bonds, stocks or exchange traded funds serving as collateral.
The bank said it was accepting applications from eligible securities groups, funds and insurance companies to pledge ETFs, bonds or constituent shares of the CSI 300 index for more liquid assets such as sovereign bonds and central bank notes.
The funds can only be invested into stock market, the PBoC has said.
The size of the Rmb500bn ($70bn) tool “can by expanded depending on market conditions”, said the bank. The mechanism is designed to “enhance the inherent stability” and “promote healthy development” of the capital markets, it said.
Experts said the tool was similar to the US Federal Reserve’s Term Securities Lending Facility, which allowed dealers to borrow liquid assets such as Treasuries for financing by pledging illiquid collateral such as corporate bonds.
It was created during the 2008 financial crisis and revived in 2020 during the pandemic.