TD Securities On Attempts to Prop Up Chinese Equity Market

TD Securities note that “after Premier Li's comments, rumours of a stock market rescue with a CNY2tn stabilisation fund have popped out though the details are scant. We view this as a move to prop up confidence after the bruising start for Chinese equities since the start of the year with net US$4.2bn YTD in equity outflows (as of 22 Jan).”

• “As a recap, during the ‘15 equities rout, authorities tapped China Securities Finance Corp as its stabilization vehicle granting it access to as much as CNY3tn of borrowed funds from sources including the PBoC.”
• “The money was used to buy stocks directly and provide liquidity to brokerages but even then, the turmoil didn’t end until a year after.”
• “We will also watch out closely for headlines of Central Huijin's purchase of China's ETFs to confirm the rumours though we don't think foreign investors will reallocate back to China's equities given the murky economic outlook.”
• “As such, we expect CNY to underperform in 2024 on subdued capital inflows and the black swan event is that the PBoC suddenly engineers a weaker CNY to boost exports in a repeat of 2015.”