Hong Kong stocks experienced a significant rebound on Thursday following the announcement of a liquidity-boosting swap facility by China’s central bank. This initiative, valued at US$70 billion, sparked a 4.2% surge in the Hang Seng Index, providing relief after recent sell-offs.
Market Reactions
The Hang Seng Index rose to 21,508.37 by the noon break, recovering from a two-day slump that saw a staggering 11% decline. The index has fallen 5.4% so far in this shortened trading week, as financial markets in Hong Kong will close on Friday for a public holiday. The Hang Seng Tech Index mirrored this positive trend, also increasing by 4.2%.
Mainland Chinese stocks followed suit, with the CSI 300 Index climbing 2.9%, bouncing back from a 7.1% drop the previous day. The Shanghai Composite Index also saw a healthy 3% increase.
Details of the Liquidity Boost
The rebound in sentiment was largely attributed to the People’s Bank of China (PBOC), which introduced a swap facility with an initial size of 500 billion yuan (approximately US$70.7 billion). This program allows qualified brokerages, mutual-fund firms, and insurance companies to swap their holdings of bonds and exchange-traded funds as collateral for government bonds and central bank bills. The PBOC has indicated that the size of this facility can be expanded, and applications from qualified institutions will be 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, aimed at boosting liquidity in the stock market. Included in this package is a 300 billion yuan relending program intended to finance stock buy-backs and increase stakes by listed companies and major shareholders.
Anticipation of Fiscal Stimulus
As investors reacted positively to the PBOC’s measures, attention now turns to a scheduled press conference by Finance Minister Lan Foan on Saturday. There are high expectations that Lan will unveil details or provide insights into forthcoming fiscal stimulus measures, especially after recent signals from top leaders indicating a comprehensive shift towards supporting economic growth.
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