Hong Kong and Chinese stocks rebounded from recent sell-offs following the People’s Bank of China‘s (PBOC) launch of a US$70 billion financing facility aimed at institutional buying. This initiative, alongside expectations of further fiscal stimulus, has bolstered investor sentiment.
The Hang Seng Index surged 3% to close at 21,251.98, recovering from a two-day decline of 11%. Despite this rebound, the benchmark ended the shortened trading week down 6.5%, as financial markets in the city will be closed on Friday for a public holiday. The Hang Seng Tech Index also saw gains, rising 2.1% on the day.
In mainland markets, the CSI 300 Index increased by 1.1%, bouncing back from a 7.1% drop the previous day, while the Shanghai Composite Index finished 1.3% higher. However, trading remains volatile, with the 10-day realized volatility of the CSI 300 reaching its highest level since August 2015, according to Bloomberg data.
Investor confidence appeared to stabilize following the PBOC’s introduction of a swap facility, initially set at 500 billion yuan (US$70.7 billion). This program allows qualified brokerages, mutual funds, and insurance companies to swap their holdings of bonds, exchange-traded funds, and stocks on the CSI 300 for more liquid assets such as government bonds and central bank bills. The facility can be expanded, and applications from qualified institutions are being accepted immediately.
This swap facility is part of a broader package of 800 billion yuan in new funding tools announced by the PBOC last month, which also includes a 300 billion yuan relending program to finance stock buybacks and stake increases by listed companies and major shareholders.
Investors are eagerly awaiting a press conference from Finance Minister Lan Foan on Saturday, hoping for announcements regarding fiscal stimulus measures. Recent signals from top leaders indicate a commitment to prop up economic growth.
“The steep dip in Chinese equities could present a more tempting entry point for investors, banking on the hope that Beijing will eventually roll out a fiscal lifeline,” said Stephen Innes, managing director at SPI Asset Management in Bangkok.
Chinese and Hong Kong markets have been among the best performers globally over the past month, with key equity gauges rising at least 20% and turnover reaching record highs. For this bull run to sustain, analysts at Daiwa Securities estimate that Beijing needs to deliver no less than 3 trillion yuan in fiscal packages to rejuvenate economic growth.
As part of the anticipated fiscal stimulus, China’s legislative body is expected to approve the issuance of 2 trillion yuan in government bonds later this month, according to Lu Ting, chief China economist at Nomura Holdings.
Market volatility is likely to persist until more fiscal policies and measures supporting the property market are enacted, which will be crucial for a more sustainable re-rating of stocks, according to HSBC Jintrust Fund Management.
On the Hang Seng Index, all but five stocks saw gains. Ping An Insurance Group surged 5.9% to HK$51, while China Life Insurance rose 4.7% to HK$16.46, amid optimism about their eligibility for the swap facility. Alibaba Group Holding gained 2.8% to HK$105.80, and Tencent Holdings advanced 1.1% to HK$438.80.
On the mainland, Guotai Junan Securities and Haitong Securities both reached the 10% daily limit in Shanghai after announcing detailed merger plans, resuming trading after being suspended since September 5.
Other major Asian markets also traded higher following overnight gains in US stocks. Japan’s Nikkei 225 rose 0.3%, South Korea’s Kospi added 0.2%, and Australia’s S&P/ASX 200 climbed 0.4%.
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