October 10, 2024

China launches US$70 billion swap tool to enhance stock market liquidity

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China’s central bank on Thursday officially launched a new swap tool to “promote the healthy development of the capital markets”, with an initial size of 500 billion yuan (US$70.7 billion).

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The new swap facility would enable qualified securities, mutual funds and insurance companies to swap government bonds or central bank bills with their holdings of corporate bonds, stocks or exchange-traded funds as collateral, according to a statement released on the website of the People’s Bank of China.

The tool was initially unveiled by the PBOC governor Pan Gongsheng two weeks ago as part of a slew of monetary easing to boost the world’s second-largest economy.

It allows institutional investors to exchange assets with poorer liquidity for assets with higher liquidity, which can be only used to invest in China’s stock markets.

The central bank would begin accepting applications immediately and the facility’s size could be further expanded, the bank’s statement added.

The tool was launched to stabilise market expectations

Huachuang Securities

The move is widely believed to increase the liquidity and boost the transaction of China’s stock markets, which have turned volatile in the past two weeks because of market speculation over a strong government stimulus package.

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