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China's 500b yuan market injection: What's the impact and potential opportunities

Invest With Cici joined discussion · Oct 12 11:13

The Chinese market has attracted increased attention in global markets, accompanied by rising volatility as more capital seeks to capitalize on potential opportunities largely driven by government measures. This environment led to a sharp rebound at the end of September, just before the National Holiday.

A specific example of this volatility: after two days of significant declines, the Chinese stock market rebounded, with the $FTSE China A50 Index (.FTXIN9.CN)$ rising by 2.25% on October 10.

The reason for this rebound is China’s central bank kicked off the 500 billion yuan (US$70.7 billion) swap facility to aid the stock market.

This article will explain what the Swap Facility is, its potential impact on the stock market, how to invest in the Chinese stock market, and tips for maintaining a positive mindset in volatile markets.

China's 500b yuan market injection: What's the impact and potential opportunities

What is the Swap Facility?

The swap facility, officially called the "Securities, Funds and Insurance Companies Swap Facility" (SFISF), allows securities firms, fund companies, and insurance companies to use their bonds, ETFs, and blue-chip stocks as collateral to borrow highly liquid assets like government bonds from the central bank.

Importantly, the funds obtained through this facility can only be used for investing in the stock market. Initially set at 500 billion yuan, there is potential for expansion in the future.

Potential Impact on the Stock Market

While the central bank has stated that the swap facility will not affect the overall money supply, historical examples, such as the U.S. Federal Reserve's Term Securities Lending Facility (TSLF) during the subprime crisis, demonstrated that similar measures can quickly stabilize financial markets.

The SFISF enhances the funding and stock-buying power of non-banking financial institutions, enabling them to repurchase or increase their stock holdings. This injection of liquidity can bring new capital into the stock market.

How to Invest in the Chinese Stock Market: 5 China ETFs to Watch

For those seeking exposure to China's new economy, including companies like $TENCENT (00700.HK)$ and $Alibaba (BABA.US)$ , investing in overseas China stock ETFs may be considered a viable option. Some of the largest and most actively traded China ETFs include:

1. $iShares MSCI China ETF (MCHI.US)$ : This ETF tracks the MSCI China Index and provides a comprehensive view of Chinese stock performance. As of the end of August 2024, it has significant investments in Tencent (17.2%) and Alibaba (8.5%), with a balanced mix across various sectors.

2. $KraneShares CSI China Internet ETF (KWEB.US)$ : Focusing exclusively on Chinese internet companies listed overseas, KWEB holds about 30 stocks, resulting in a higher concentration.

3. $iShares China Large-Cap ETF (FXI.US)$ : This ETF targets large-cap Chinese stocks listed in Hong Kong, with a broader focus on traditional sectors like financials and energy, in addition to internet companies.

4. $Direxion Daily FTSE China Bull 3X Shares ETF (YINN.US)$ : This leveraged ETF magnifies the index's movements by three times. While it offers the potential for higher returns, it also carries increased risks and is not suitable for long-term holding.

5. $Invesco China Technology ETF (CQQQ.US)$ : This ETF focuses on Chinese technology stocks, including companies in electronics, semiconductors, and artificial intelligence, providing diversified exposure to China's tech sector.

If you want to learn more about how to gain exposure to the Chinese stock market, read this article:

Buying China at the Dip: ETFs to Watch

Keeping a Positive Mindset in Volatile Markets

The Chinese stock market has experienced significant volatility over the past two weeks, which can leave many investors feeling stressed. A negative mindset can lead to poor decisions, such as buying at high prices and selling at low prices, ultimately resulting in smaller profits or even losses.

Here are two simple tips to help you maintain a calm mindset:

1. Create a Trading Plan

It can be challenging to predict whether the stock market will continue to rise or when it will peak. Therefore, it’s important to develop a trading plan. If you believe the market is overheated, consider taking some profits. Conversely, if you own companies and have confidence in their future, holding onto your shares may be wise. Don’t let market emotions dictate your actions; stick to your plan.

2. Avoid Comparing Yourself to Others

The bull market can often feel competitive. Some investors may feel dissatisfied even when their stocks rise, especially if they perceive that they are underperforming compared to friends or missing out on skyrocketing stocks. Instead of comparing yourself to others, focus on your own investment journey. You wouldn’t envy a friend who won the lottery because you know that’s beyond your control. Aim to earn within your means and refrain from comparing your results to others.

By staying updated on local market trends and keeping a positive mindset, investors can navigate the market effectively. Follow Moomoo Learn and Cici for the latest insights.

Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only. Read more