China unleashes $483bn margin trader to stem stock rout
China has created what amounts to a state-run margin trader with $483bn (€445bn) of firepower, its latest bid to end a stock market rout that threatens to drag down economic growth and erode confidence in President Xi Jinping's government.
China Securities Finance (CSF) can access as much as 3 trillion yuan of borrowed funds from sources including the central bank and commercial lenders, according to people familiar with the matter. The money may be used to buy shares and provide liquidity to brokerages, they said.
While it's unclear how much CSF will ultimately deploy into China's $6.6 trillion equity market, the financing is up to 25 times bigger than the market support fund started by Chinese brokerages earlier this month. That's probably enough to restore confidence among China's 90 million individual investors, says Bocom International Holdings. The Shanghai Composite Index jumped 3.5pc yesterday, capping a two-week rally that's turned it into one of the world's best-performing equity gauges.
"It doesn't have to use up all the money, as long as it can make the rest of the market believe that it has enough ammunition," said Hao Hong, a China strategist at Bocom Int in Hong Kong.
"It is a game of chicken. For now, it seems to be working."
CSF, founded in 2011 to fund the margin-trading businesses of Chinese brokerages, has transformed into one of the key vehicles for the stock-market rescue package. At 3 trillion yuan, its funding would be about five times bigger than the new proposed bailout for Greece and exceed China's 2.3 trillion yuan of regulated margin finance during the height of the stock-market boom in June.
"What the authorities are demonstrating to the market is that if panic does take hold, they have the resources at their disposal to deal with that," said James Laurenceson, of the Australia-China Relations Institute.
"Monetary authorities around the word regularly send the same signal in credit and foreign exchange markets."
CSF had 2.5-3 trillion yuan of funding available as of this week, with the exact amount constantly changing, the people familiar with the matter said. No comment was immediately available from CSF. (Bloomberg)