China has announced that it will allow institutional investors to use central bank financing to make stock purchases.
The Chinese government is now considering setting up a market stabilization fund, starting with an initial pool of 800 billion yuan ($113 billion) that will be injected into stock markets, Bloomberg reports.
Governor Pan Gongsheng said Beijing will start with a 500 billion yuan swap facility and a 300 billion yuan reborrowing facility, but could add another 500 billion yuan ($71.31 billion) in phases.
Since the news broke, the Hang Seng Index (HSI), which consists of 82 blue chip companies in China and Hong Kong, has risen 17.4%.
HSI has now recovered more than thirteen months of losses in just over two days.
The CSI 300, which consists of China’s 300 largest companies, is up 12.84% since the news broke.
Says Linda Lam, head of equity advisory for North Asia at Union Bancaire Privee in Hong Kong:
“What surprised the market is the PBOC’s clear direction and funding to be a robust liquidity haven to support the stock market. In the short term, China’s capital markets should enjoy a sweet honeymoon period as China buys time to resolve deeper-seated growth issues.”
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