China Pledges Liquidity, Asks for Rational Investor Reaction
Comment of the Day

January 28 2020

Commentary by Eoin Treacy

China Pledges Liquidity, Asks for Rational Investor Reaction

This article by Christopher Anstey and Claire Che for Bloomberg may be of interest to subscribers. Here is a section:

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.

Eoin Treacy's view

The question of what would be required for China to kickstart meaningful stimulus again now appears to have been answered. The coronavirus and the economic shutdown it has necessitated are going to result in a meaningful hit to growth in the first quarter. With the extension of its holiday season into early February, China is taking advantage of the break to announce market calming measures aimed at averting a crash once the market opens up again. That means a significant stimulus infusion to allay growth fears.

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