On Tuesday, at a press conference held by the State Council Information Office, the central bank, the General Administration of Financial Regulation, and the China Securities Regulatory Commission jointly launched a combination of policies, triggering a strong rebound in A-shares and Hong Kong stocks. Rate cuts, reductions in mortgage interest rates for existing housing loans, the introduction of swap facilities for securities, funds, and insurance companies, stock repurchases, increased holdings, and re-lending, support for cross-industry mergers and acquisitions and reorganizations, and support for insurance companies to establish private equity.
.. ‘It’s really exceeded expectations,’ said many people from financial institutions when interviewed by the Securities Times. The unexpected aspects of this series of policies are reflected in the fact that the introduction time of monetary policies is just right and even ahead of schedule. The innovative policy tools are unprecedented, and funds directly enter the market. Policies such as supporting mergers and acquisitions and reorganizations, market value management, and insurance companies establishing private equity are worth looking forward to. Hong Hao, chief economist of GROW Investment Group, told the Securities Times: ‘The introduction of such unexpected policies at the current point will surely trigger a warm response from the market. In particular, the swap facilities and repurchases and increased holdings with re-lending can be said that the central bank is paying for you to buy stocks, and the interest rate is even lower than that of government bonds. It is expected that A-shares will usher in a strong rebound.’ A package of policies ‘exceed expectations’. When interviewed by the Securities Times, Hong Hao and many people in the financial industry believe that the unexpected aspects of this policy combination are reflected in the following points: First, the introduction time of monetary policies is just right. The Shanghai Composite Index had previously fallen back to around 2700 points. Market sentiment was sluggish and valuations were already cheap enough. There had been high calls for rate cuts, reductions in interest rates, and reductions in mortgage interest rates for existing housing loans. However, this rare simultaneous reduction exceeded market expectations. It is expected that the scale of funds released will exceed one trillion yuan. Second, the innovative policy tools are unprecedented, and funds directly ‘transfuse blood’ into the stock market. The central bank has launched swap facilities for securities, funds, and insurance companies. The initial scale is 500 billion yuan, and the funds can only be used to buy stocks. There is also re-lending for stock repurchases and increased holdings. The initial scale is 300 billion yuan, and the loan interest rate is 2.25%, even lower than that of government bonds. Third, there has been substantial progress in policies such as the entry of long-term funds into the market, support for mergers and acquisitions and reorganizations, and market value management. Subsequent related supporting policies will be introduced. Unprecedented innovative policy tools. When interviewed, many people in the financial industry further stated that the most unexpected thing at yesterday’s press conference was the two new monetary policy tools created by the central bank: the proposed swap facilities for securities, funds, and insurance companies and re-lending for stock repurchases and increased holdings. This is expected to provide stable new fund support for the stock market. Moreover, it adopts a ‘bond-for-bond’ method without increasing the issuance of base currency but directly transfusing capital into the capital market, which is conducive to the stable and healthy development of the stock market. First, the swap facilities for securities, funds, and insurance companies, that is, supporting eligible securities, funds, and insurance companies to use assets such as bonds, stock ETFs, and CSI 300 constituent stocks as collateral to exchange for high-liquidity assets such as government bonds and central bank bills from the central bank. This will greatly enhance the ability to obtain funds and increase holdings of stocks.Second, the special relending for stock repurchase and increase. That is, guiding banks to provide loans to listed companies and major shareholders to support the repurchase and increase of listed company stocks. The central bank issues relending to banks, providing a capital support ratio of 100%, and the relending interest rate is 1.75%. Banks are allowed to add 50 basis points on this basis. That is to say, the interest rate of repurchase loan and increase loan is 2.25%. The initial quota is 300 billion yuan, and the scale can be expanded in the future depending on the application situation.
Third, the swap facility does not directly give money and will not expand the scale of base money. The swap facility for securities, funds, and insurance companies adopts the method of ‘exchanging securities for securities’. This not only improves the financing ability of non-bank institutions but also does not directly provide funds to non-bank institutions and will not issue base money. A person close to the central bank told reporters that the swap facility will greatly enhance the capital acquisition ability and stock increase ability of institutions, and the swap financing is limited to investing in the stock market, which is conducive to better playing the role of securities, funds, and insurance companies in stabilizing the market. ‘On the one hand, the new tools will help institutions participating in the stock market revitalize existing assets. As important investors in the stock market, securities, funds, and insurance companies are expected to more actively participate in market transactions and enhance market activity with the liquidity provided by the central bank.’ Gao Ruidong, chief economist of Everbright Securities, believes. ‘On the other hand, the relending for stock repurchase and increase will help rediscover the value of listed companies. At the same time, repurchasing stocks is also one of the ways for listed companies and major shareholders to return to investors. The new monetary policy tools also have very positive significance for the return of investors, especially small and medium investors.’ Long-term funds are expected. Long-term funds are regarded as a stabilizer of the capital market due to their long investment cycle, large capital scale and strong stability. This expansion of the pilot reform of long-term investment of insurance funds supports other qualified insurance institutions to establish private securities investment funds; optimizes the assessment mechanism and encourages and guides insurance funds to carry out long-term equity investment; encourages wealth management companies and trust companies to issue more long-term equity products, etc. These are all series of policies to promote the entry of long-term funds into the market. ‘Under the reform direction of adhering to marketization and rule of law in China’s capital market, through the introduction of medium- and long-term funds, activation of merger and reorganization measures and standardization of the implementation of market value management, jointly promote the high-quality development of the capital market. ‘ Zhang Jun, chief economist of China Galaxy Securities, said in an interview with the Securities Times reporter. The above measures will not only improve the overall operation efficiency of the market but also provide more solid financial support for high-quality economic development.Goldman Sachs has released a research report analyzing that this signals the beginning of a new round of policy easing in China to support the real economy.
In the future, more demand-side easing measures may be needed, especially fiscal easing, to improve growth prospects.