China Bans Selling, Plans Massive Liquidity Injection To Prevent Market Crash
Judging by the collapse in Chinese futures and the Offshore Yuan over the past week, China’s key cash equity index – The Shanghai Composite – is set to plunge around 6-8% as the market re-opens for the first time since Lunar New Year (and the coronavorus chaos).
China stock futures have tumbled…
And Offshore Yuan is fighting at the 7.00/USD level…
Which of course will not do for the nation has to maintain the appearance of a minor flesh-wound than a catastrophic coronary. And so, as Bloomberg reports, China unveiled a raft of measures over the weekend to aid companies hit by the coronavirus outbreak and also shore up financial markets.
Quarantative easing?
The People’s Bank of China announced that the total injection announced was 1.2 trillion yuan, the largest single-day addition of its kind in data going back to 2004.
The money will be supplied using reverse repurchase agreements to ensure liquidity is “reasonably ample” during the outbreak, according to the PBOC.
The new measures follow the announcement last week that China’s biggest banks will lower interest rates for firms in Hubei, the center of the outbreak.
However, as Tommy Xie, an economist at Oversea-Chinese Banking Corp notes, the net effect of this admittedly huge liquidity injection is much lower as there are more than 1 trillion yuan of short-term funds scheduled to mature on Monday.
“The amount of the net injection isn’t huge. The PBOC may want to retain some flexibility, which means it can add more liquidity in the rest of the week if the sentiment is too bad.”
Finally, we wonder if even this additional liquidity injection will be big enough as judging by Dr.Copper, the Chinese economy is about to be hit by the biggest shock in recent history…
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