Panic: China Central Bank Steps In To Bailout Stocks As Underwater Traders Pray For A Rebound

On Saturday we learned that a consortium of Chinese brokers will inject 15% of their net assets — or around $19 billion — into blue chip stocks starting Monday and China’s mutual funds have pledged not to sell their equity positions for at least a year.

As we and others noted, the injection from the brokerages likely will not matter. As one analyst told Bloomberg, “it won’t last an hour in this market.” Besides, much of the unofficial, backdoor margin buying was funneled into speculative small caps, which are, for now anyway, outside the purvey of the emergency measures. For these reasons (and others) we said the following: 

 

 

It’s probably just a matter of time before the PBoC intervenes to provide Kuroda-style plunge protection when “sentiment” looks to be souring.

It took less than 24 hours for that prediction to be proven correct because on Sunday, the China Securities Regulatory Commission announced that the PBoC is set to inject capital into China Securities Finance Corp which will use the funds to help brokerages expand their businesses and reinvigorate stocks. Here is the confirmation from the People’s Daily:

And here is the WSJ:

China’s central bank will provide liquidity to help stabilize the country’s crumbling stock market, according to a statement by China’s top securities regulator late Sunday.

The People’s Bank of China will inject capital into China Securities Finance Corp., which is owned by the securities regulator, according to the statement by the China Securities Regulatory Commission. The company will then use the funds to expand brokerages’ business of financing investors’ stock purchases.

The CSRC said Friday it would dramatically increase the company’s capital to 100 billion yuan ($16.1 billion) from the current 24 billion yuan. The exact amount to come from the central bank hasn’t been disclosed.

The latest move comes as Chinese authorities are scrambling to stem a stock-market slide that officials fear could spread to other parts of the world’s second-largest economy.

Also late Sunday, a unit of China’s giant sovereign-wealth fund, Central Huijin, said it recently purchased exchange-traded funds and will continue to do so, another measure aimed at stabilizing the market.

In other words, China’s central bank is now underwriting brokerages’ margin lending businesses; that is, the PBoC is now in the business of financing leveraged stock buying.