China Launches New Stock Market Support Measures to Boost Investor Confidence

On October 18th, the People’s Bank of China (PBOC) officially launched its new 500 billion yuan Securities Firms, Funds and Insurers Swap Facility (SFISF). Under the SFISF, eligible securities firms, fund managers and insurers can pledge assets such as bonds, stock ETFs, and stocks from the CSI 300 index as collateral to borrow government bonds or central bank bills from the PBOC.

The first batch of 20 financial institutions have already been approved to participate, with an initial quota of over 200 billion yuan applied for. While the initial launch size is 500 billion yuan, the PBOC has indicated it is prepared to scale up the facility as needed in the future.

Alongside the SFISF, the central bank is also providing 3 trillion yuan in low-cost re-lending loans at an interest rate of 1.75% to support listed companies and major shareholders in conducting share buybacks. An initial 21 financial institutions have been authorized to extend these relending loans.

Key features of the new facilities include:

• The SFISF allows participants to swap lower liquidity assets for higher quality, more liquid government and central bank securities
• Funds obtained through the SFISF can only be invested in the stock market, not bonds or other assets
• The maximum loan-to-value ratio for SFISF is capped at 90% in principle
• An additional “supplementary line” is set at no less than 75% to support market stability if needed
• Relending loans are exclusively for funding share buybacks by listed companies and major shareholders
• Initial relending quota is 3 trillion yuan at 1.75% for 1 year, with potential extensions

Analysts believe these new tools will particularly benefit blue chip stocks, large caps, and constituent stocks of key indexes like the CSI 300. By boosting liquidity and making it easier for listed companies and shareholders to support their own shares, the measures aim to instill market confidence and lay the foundation for a sustainable bull market.

However, with the wide dispersion among China’s 5000+ listed stocks, not every name will benefit equally. Investors are advised to remain selective and focus on fundamentally sound companies with reasonable valuations.

Overall, the new market support facilities demonstrate China’s clear desire and ability to shore up its stock market when needed. Whether it marks the beginning of a major new bull run remains to be seen, but policymakers are sending an unambiguous signal of support amid recent volatility.