PBOC Starts $71 Billion Liquidity Tool for Stock Investors

(Bloomberg) — China’s central bank has set up a swap facility to provide liquidity to institutional investors to buy stocks, part of a broad stimulus package announced earlier that ignited a rally in equities.

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The People’s Bank of China will accept applications from eligible securities firms, funds and insurers starting Thursday to obtain highly liquid assets such as government bonds and central bank bills if they provide certain collateral. The size of the tool is 500 billion yuan ($70.6 billion) and can be expanded in the future, the monetary authority said in a statement.

PBOC Governor Pan Gongsheng unveiled the mechanism as part of a stimulus bonanza last month that signaled the government’s intent to draw a line under the slowing economy. The moves fueled a world-beating rally that saw shares rise as much as 30%.

The funds obtained through the facility can only go toward investment in the stock market, Pan said at the time. Bonds, stock ETFs, CSI 300 constituent shares and other assets could be used as collateral, the PBOC said Thursday.

The latest announcement comes as the stock rally cools on the lack of immediate fiscal stimulus following a weeklong national holiday. Investors are now awaiting a press briefing by Finance Minister Lan Fo’an on Saturday to watch for clues of any steps to boost government borrowing and spending to shore up growth.

The CSI 300 Index rebounded on Thursday from a heavy selloff the previous day. It finished up 1.1% at the close, after gyrating between gains and losses earlier.

Insurers are likely to be the first to apply for the liquidity tool, partly because their equity holdings match the collateral requirements made by the PBOC, according to Wu Xuan, fund manager at Borui Funds Management. Regulators see insurance funds as a key source of long-term investment into the market, he said.

“They are shouldering more of a ‘political task,’” said Wu. “I would expect more details over the coming weeks and the first batch using the tool within two-three months.”

Serena Zhou, senior China economist at Mizuho Securities Asia Ltd., said the policy is expected to support the market, although she wouldn’t link the timing to the performance of stocks.

Authorities stepped up support for the equities market and the economy as growth momentum weakened in recent months, putting Beijing’s target of expansion around 5% this year under threat.

Consumer spending remains sluggish and under strain from a weak labor market.

Wages offered to new hires in China declined after two straight quarters of gains, according to data provided by online recruitment platform Zhaopin Ltd. and compiled by Bloomberg. Tourists also shelled out less money during the long holiday in October than before the pandemic.

–With assistance from April Ma.

(Updates with stock market performance in sixth paragraph.)