The Chinese market, which reopened on Tuesday after a weeklong public holiday, was pressured on Wednesday as domestic traders did not get the additional stimulus they had factored in. Come Thursday, things took a turn for the better as the People's Bank of China announced measures to boost the stability of the domestic equity market.
What Happened: In a statement released on its website, the PBoC said it has decided to establish the "Securities, Funds and Insurance Companies Swap Facility," or SFISF, to support qualified securities, funds and insurance companies to exchange bonds, stock exchange-traded funds and CSI 300 constituent stocks and other assets for high-grade liquid assets such as Treasury bonds and central bank bills from the central bank.
The scale of operation during the first phase is 500 billion yuan ($70.7 billion) and this could be expanded further depending on the situation, the central bank said. Applications from qualified securities, funds and insurance companies will be accepted with immediate effect, it said.
The central bank clarified that the new measure is in order to implement the requirements of the Third Plenary Session of the 20th CPC Central Committee regarding "establishing a long-term mechanism to enhance the inherent stability of the capital market" and promote the healthy and stable development of the capital market."
Thursday's announcement comes on top of the liquidity-boosting measures the central bank announced in late September regarding cutting the reserve requirement ratio, which is the amount of cash banks must hold as reserves, by 50 basis points freeing up about 1 trillion yuan for new lending.
The central bank hinted at the possibility of reducing it by a further 0.25-0.50% points. It also said it would lower the seven-day repo rate by 0.2 points, the interest rate on a medium-term lending facility by about 30 basis points and loan prime rates by 20-25 basis points.
Market Reacts: The Shanghai Composite Index – the key market gauge of mainland China, rallied strongly following the fresh stimulus. After opening at 3,277.69, modestly higher than the previous close of 3,258.86, the index gave back its gains in early trading and moved below the unchanged line.
Following PBoC's announcement, the index recovered. At last check, it traded 2.92% higher at 3,353.91.
Hong Kong's Hang Seng Index also rallied over 4%.
US-listed Stocks Rip Higher: U.S.-listed Chinese stocks listed in Hong Kong reflected the buoyancy and were sharply higher by mid-day on Thursday. Among the gainers are:
Alibaba Group Holding Limited (NYSE:BABA) gained 4.28%.
XPeng, Inc. (NYSE:XPEV) jumped 9.50%.
Li Auto, Inc. (NASDAQ:LI) rose 5.96%.
Nio, Inc. (NYSE:NIO) added 6%.
JD.com, Inc. (NASDAQ:JD) climbed 5.63%.
Tencent Holdings Ltd. (OTC:TCEHY) moved up 1.98%.
Baidu, Inc. (NASDAQ:BIDU) moved up 2.47%.
The iShares MSCI China ETF (NASDAQ:MCHI) ended Wednesday's session down 2.36% at $51.97, according to Benzinga Pro data.
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