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China Pledges Liquidity, Asks for Rational Investor Reaction

Christopher Anstey and Claire Che
China Pledges Liquidity, Asks for Rational Investor Reaction

(Bloomberg) -- China pledged to provide abundant liquidity for money markets and urged investors to evaluate the impact of the coronavirus objectively, as the nation prepared for a potentially tumultuous resumption of trading next Monday.

Along with a potential sell-off in Chinese stocks, which haven’t traded onshore since Jan. 23, there’s a “large amount of funds” coming due Feb. 3, the People’s Bank of China said in a statement. It will conduct operations “to provide abundant liquidity in a timely manner to maintain reasonable and sufficient liquidity in the banking system,” it said.

China’s top securities regulator separately told brokerages to prepare for off-site trading as the country’s market infrastructure girds for strained conditions as a result of measures aimed at containing the coronavirus epidemic.

Securities firms should guide investors to assess the virus “rationally and objectively” and “adhere to the concept of long-term investment and value investment,” the China Securities Regulatory Commission said in a statement issued during the Lunar New Year holiday Tuesday.

Contracts tied to Chinese stocks have tumbled in recent days as investors reacted to the spread of the virus -- FTSE China A50 futures slumped more than 6% since the close last Thursday. They were little changed early Wednesday, after global investors paused their flight from Chinese investments, suggesting selling pressure may be easing.

Along with stocks, the PBOC confirmed that interbank, bond, bill, gold and currency markets will reopen Feb. 3.

The outbreak has wrecked what would otherwise be a strong period for retail sales, with hundreds of millions of Chinese traveling and spending during the new year celebrations. The disease also emerged just as China’s economy was picking up steam, with the securing of a phase-one trade deal with the U.S. and signs of an upturn in manufacturing.

The CSRC called for companies to make dealing with the virus their top priority, and to “implement detailed prevention and control measures.”

At the same time, the regulator ordered contingency planning to ensure the “safe and stable operation of the transaction-settlement system.” Brokerages should provide support for off-site trading amid the focus on preventing the spread of the disease, the CSRC said.

Reopening China’s markets could prove challenging as individuals and employers alike grapple with how to get back to business while at the same time strengthening health-safety standards. The CSRC urged companies to be forthright in their disclosures and told stock exchanges to ensure that investor rights are protected.

“All listed companies are to disclose information in a true, accurate, complete and timely manner,” the regulator said.

China Stocks

China’s domestic stock market, the world’s second largest, is known for being dominated by retail traders, who can sometimes engage in crowd behavior. New government initiatives -- such as a new subsidy or regulation -- can send stocks soaring as individual investors rush to pile in. And official calls for calm aren’t unusual.

In 2018, the CSRC urged local authorities to help ease pressure on listed companies threatened by sales of shares that had been pledged as collateral for loans. Back in 2015, China took even sterner measures, suspending a swathe of shares during an epic bursting of a domestic stock bubble. It also deployed the “national team,” as state-backed funds are called, to prop up shares.

Read here how traders suspected state support at work in late 2019

Policy makers have at the same time tried to nurture a long-term investment culture. China is allowing full foreign ownership of life insurers, futures, securities and mutual fund companies in stages this year.

Foreign investors have also been an increasing presence in the onshore market. Overseas capital now accounts for 10% of daily equity trading in Shanghai, up from 2% just 12 months back, Zhu Min, a former central bank official who is now chairman of the National Institute of Financial Research at Tsinghua University, said earlier this month.

That all raises the stakes for how regulators handle the domestic markets as they reopen next week.

(Updates market moves in fifth paragraph)

To contact the reporters on this story: Christopher Anstey in Tokyo at canstey@bloomberg.net;Claire Che in Beijing at yche16@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Joanna Ossinger, Cormac Mullen

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