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China "Crosses Rubicon" With Stock Bailout; BofA Says PBoC Risks "Hurting Its Credibility"
Earlier today in “Panic: China Central Bank Steps In To Bailout Stocks As Underwater Traders Pray For A Rebound,” we noted (without much surprise) that the PBoC has officially taken the plunge. Late on Sunday, the China Securities Regulatory Commission announced that China’s central bank is set to inject capital into China Securities Finance Corp which will in turn use the funds to help brokerages expand their businesses and reinvigorate stocks. Translation: China’s central bank is now underwriting brokers’ margin lending businesses.
Although Beijing will surely contend that this does not amount to Chinese QE because the central bank isn’t actually adding equities to its balance sheet (or at least as far as we know), it certainly sounds as though the PBoC is now set to directly fund leveraged stock purchases by retail clients and if that doesn’t count as using the central bank’s balance sheet to monetize risk assets then we don’t know what does.
The move came after a consortium of brokers agreed on Saturday to commit 15% of their collective net assets to propping up China’s flagging stock market. The amount of support sums to just $19 billion and will be allocated to blue chip stocks, meaning, in no uncertain terms, that the initiative will be woefully inadequate to combat the rapid unwind of hundreds of billions of off-the-books margin trading.
And so, the fate of the market now lies squarely in the hands of the PBoC who, as BofAML notes, may have just “crossed the Rubicon.”
As we argued before, the A-share market may not bottom until the government, possibly via the PBoC, becomes the buyer of the last resort. It seems that the government might have just taken the first step in that direction on Sunday night with PBoC’s promise to provide liquidity support to stabilize the market. We expect the A-share market to rebound somewhat in coming days, especially large cap names. If that happens, we suggest investors sell into the rally, especially brokers. Fundamentally, with SHCOMP ex. banks trading at 31x trailing 12-month earnings, the market appears very expensive to us. We assess that there is still a fairly high chance that market may fall sharply again at certain point over the next few months, unless the PBoC makes an open-ended commitment to support the market.
What the government did over the weekend
Among the many things announced over the weekend to support the market, three are meaningful, in our view: 1) a de facto suspension of IPOs in the A-share market; 2) the set-up of an Rmb120bn market stabilization fund (MSF) by 21 major domestic securities houses, coordinated by the CSRC; and 3) the
PBoC’s promise to provide liquidity support to China Securities Finance Corporation (CSFC). CSFC is the clearing house for margin financing and stock lending businesses in China and it’s also the sole provider of margin financing loan services to securities houses. Among the three measures, the third is by far the most important in terms of potential impact on market psychology by our assessment - we doubt that the first two alone would be able to stop a potential market rout on Monday.
Has PBoC crossed the Rubicon?
CSRC’s announcement on the liquidity support does not spell out how the liquidity will be used by CSFC, nor does it say anything about the size of the potential support. We suspect that the initial PBoC loans to CSFC will be used on Monday morning to fund the MSF until brokers’ funds arrive (by 11am on Monday as ordered by the CSRC). Local media reported that CSRC is confident of Rmb1tr inflows into the A-share market in short order. So it’s also possible that PBoC might have committed to provide a few hundreds of billions of Rmb for the time being by our assessment, with the balance of the inflows potentially coming from pension funds, insurers etc. At this stage, it doesn’t appear to us that PBoC is prepared to buy stocks itself or make its commitment to provide support open-ended.
While we would certainly agree that the PBoC has indeed "taken the first step in the direction" of becoming the buyer of last resort, we're not so sure the distinction between the central bank "buying stocks itself" and providing the funds for brokers to facilitate margin trading is very meaningful.
The central bank is effectively monetizing risk assets — the fact that the buyers are one degree removed from the PBoC is largely just a matter of optics. Also, we're not at all sure that the central bank will not move very quickly to make its support "open-ended" — as discussed here on any number of occasions, Beijing simply cannot afford a stock market crash and thus will not go down without a fight.
All of that said, the market's reaction to what the PBoC probably thought would be a potent one-two punch (the simultaneous cut to both the benchmark lending rate and the RRR rate) was met with still more selling, which is of course just another example of central banks losing control (see Sweden for further evidence). On that note, we'll close with the following warning from BofAML:
If PBoC becomes the main source of market-supporting liquidity, we expect the central bank's credibility to be hurt.
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what?? are they speaking Chinese or something??
"If PBoC becomes the main source of market-supporting liquidity, we expect the central bank's credibility to be hurt."
Says the bank that wouldn't exist if not for a certain central bank providing liquidity...
"bastards of america" shouldn't have a fucking opinion on the matter, they should be DEAD. GONE. EXTINCT.
Their credibilty is at least.
Yes, it's "the pot calling the kettle black."
I highly doubt the PBOC is not worried about what any rating company or bank in merika says about them.
Only if you're caught.
Nikkei down 270...
T-Minus 30-minutes and counting to open of Shanghai Market...
Place your bets...
Shanghai 3,687 -226 -5.77%
We've been shanghai'd.
Rowley Berkin QC - Shanghai !!
https://www.youtube.com/watch?v=ehumz0ugOoA&list=RDehumz0ugOoA#t=26
Looking forward to the day a Chinese bank will buy out the Bank of America on the auction block for less than a million dollars.
BofAML: "If PBoC becomes the main source of market-supporting liquidity, we expect the central bank's credibility to be hurt."
I'm sure this was also BofAML's position when the FED provided liquidity to support the US financial system. Because one thing is for sure with BofAML, they are ethical honest professionals.
We got a wicked shimmy.
THIS is a wicked shimmy...
https://www.youtube.com/watch?v=YE-PPxh7LB8&feature=player_detailpage#t=1141
Good point about BofA, but the opinion is stil valid. Who knows a gangsta better than another gangsta?
Having BofA express an opinion on any entity's credibility evokes gales of derisive laughter.
blaming short sellers and foreign investors in state media already hurt their credibility when it's rather statistically evident they make up less than 1% of all investors in SSE or SZSE
which, even by my relative-to-ZHers pro-PBOC standards, is surprising and stupid
interest rate cuts, sure. liquidity, sure. got lots of room to use either. but forcing regulators to set up stability funds and providing direct capital, they've done what the USA took 30 years to do -- went from full on bullish Greenspan to bat shit Bernanke and Draghi in barely 3 weeks
that said, it may still only stabilize the SSE around 3000-4000, in which case it's neither Greenspan nor Bernanke... but if we're back to 5500 by year's end, let alone 4750 this summer, then yeah, any sense of the PBOC mandate to secure real estate above equities that I had was totally effing wrong. but maybe these measures will still barely stabilize the market around 3000-4250, in which case they'll likely stablize the market but keep real estate as their golden child.
You are right, blaming foreign investors is total BS if that was PBOC that did so, because Chinese stock market has not been open to foreign investment yet. However, despite dropping $3.2 trillion since early June, the value of Chines stock is still at more than $7 trillion, or about 25% above its value in Jan. 2015, which was about $5.7 trillion.
yeah for sure and that's why I thought 3000-4000 would be there sort of target soft landing area...
down from bat shit crazy but still good enough to be a feel good story
1000 points either side of that would have surprised me a week ago
PBOC will run out of foreign reserves long before it can move SSE back to 5500 and stabilize the RE market. They will have to resort to printing, which means inflation and the vast majority of Chinese are still living hand to mouth and have no interest in RE or equities market. Starving 99% of the population to save 1% won't work out too well. It only "worked" in the US because people aren't going hungry...yet.
china does not have to act like the US to develop a world reserve currency.
OK for the FED to RIG ALL MARKETS
NOT OK for CHINA
yer - If PBoC becomes the main source of market-supporting liquidity, we expect the central bank's credibility to be hurt." - but Japan is still a respectable entity??
So is the Plunge Protection Team and the FED.
Yeah..Totally credible as they are protecting our Exceptionally strong markets....because...if we fail then, by God, the World fails because we are the World and the rest are inferior...but you all know that...ahem...ahem.
Hmm, I guess this makes the Federal Reserve about as credible as a $3 crack whore...
Re must save strock market at arr costs, britchezz!
So far the "PBOC" appears to be "ineffectively monetizing."
Strange world these "Deflations."
All that is up is down and down is up...
They can always saddle up the pantomime horse.
So the BofA is essentially saying the FED has no credibility anymore?.
If you can't beat em. join em - all the other central banks are printing to keep the charade going, why not the PBOC? The 21st Century Depression will be worldwide and deep.
The 21st Century Depression is worldwide and getting deeper.
Lol. So it's not credible to directly purchase the stocks, but it's ok to pump the U.S. Markets full of QE money? Got it!
Lil Chinx are fucked hard up the ass by the banksters
So the communist government will buy companies stock in order to "save" the people, resulting in the government owning everything. If this is a surprise to anyone, I recommend some Communisim 101 studues.
Well said - rather like an authoritarian govt acknowledging it's own lack of a mandate to authority.
All the commie central banks will own everything for empty fiat promissory notes.
Buy all the things!!!...lmao.
Same with the ECB buying euro company bonds, because as we all know every pregnant socialist gives birth to a bouncing baby communist, eventually.
Its always the same, socialism starts with confiscating & using other peoples money for "the common good", then devolves into everything the state and its cronies decides is "good" (communism) is impounded and finally ends in fascism where the lords of the state (to include the cronies) own everything, at least on paper and according to their law.
Then we chop off their heads and the motherfucking progressive sons & daughters of the dead try it all over again, saying it just wasn't done right.
So will the Chinese flee to "safe haven" pms?
Anybody who thinks pms is a safe haven is leading a very dangerous life.
name something safer.
Silver. It's way cheaper and I can buy way more ounces.
I've never seen pms priced in ounces.
Tons of grief, sure.
Just about anything.
An ounce of gold will buy about the same amount of basic commodities (like whiskey) that it would buy in 1800. Download the Cole Report (Excel spreadsheet) to see for yourself. Gold in 1800 at $20.67/ounce.
What a brilliant dissertation! You clearly thought that out. Bravo!
Bullshit. Look at ten year charts of almost any currency and you'll see that you are full of shit.
The Ukraine, Cyprus and Greece also come to ming to when looking at who should have been holding some gold.
pms, moron.
Pre
Menstrual
Syndrome
Now back to humorless pedant school for you.
Gold is at $1200 an ounce. What was it a decade ago?
What was it three years ago?
Gold is buy when it returns to 1999 prices: <$300.
Not what the Venezualians and Argentinians say...
I'm sure they stay well away from pms, just like the rest of the world.
Demand is at an all time high.
I just know what to think anymore.....but I bought before PMs tanked. They're safe ballast for now...
LOL!
[edit] jeebus, people have no juvenile sense of humor any more.
I kinda lost it when I grew up.
Then I tolerate some of it still.
But at times my patience wears thin.
You see...When I write about Battery Operated Chainsaws as toys* then I am just joking after all.
Right?
*earlier response about a troll in another article that MsCreant was writing about...Itsy, bitsy pieces...Yeah.
Why would they lose credibility? Look at our own Federal Reserve - damn, their reputation is absolutely stellar - beyone stellar - it's AWESOMER!
This raises an interestng point.
If a totalitarian government can't keep their shit together, then the argument that the Fed would be better off in the hands of the .gov would give one reason to pause. Bottom line, we fucked!
oh wow i'm shocked [/SARCASM]
Yeah...right...your sarcasm tag is just to mislead all of us.,..
Uhmmmm,BofA, Japan and the Fed have been doing this for years now. China is just late to the game you stoopid fucks. How do they write this garbage and expect anybody to take them seriously?
Odd the Yen would rally indeed...
"Uhmmmm,BofA, Japan and the Fed have been doing this for years now. China is just late to the game you stoopid fucks. How do they write this garbage and expect anybody to take them seriously?"
Seriously, talk about the pot calling the kettle black. The hypocracy and chutzpah is staggering, these guys have balls so big they have to tote them around in wheelbarrows. "How dare those Chinese bankers do what our bankers have been doing for years and years now! The NERVE! See, I told you that you just can't trust those sneaky bastards, they're inscrutable is what they are..."
China should sell their US Treasurys and use them or, announce their gold holdings.
Why do that when you can just print?
Give them to Greece
Free markets are a bitch.
Could have a devaluation effect should the Yuan depeg.
Pot-kettle-black
USA #1 in hypocrisy
Fuck you BOFA
you cannot make this shit up.
WTF did our CB do? same fucking thing.
"Hurting its credibility", a bank? Ha-fucking-ha!
BTW BofA had to dismiss their foreclosure case against us as they used forgery and fraud in an attpemt to steal our home. Sure, we owe somebody, just not BofA according to the judge!
So...a hearty "fuck you bankster sister fuckers". LIMITED vocabulary.
PBOC can buy all the stock .... facilitating a seamless transition .... to state ownership of all companies .... oh, wait .... that would mean a Communist take over !
Hey look over there at China's problems. Don't look over here. Nothing to see.
https://biblicisminstitute.wordpress.com/2015/06/25/warmongering-vs-econ...
What would have been more surprising is if the PBoC did not do this.
The Elite of China are terrified of an enraged populace. They will slate the beasts thirst whenever possible.
The populace is not armed.....LIKE WE ARE....
So say Bankrupt of America. Hypocritical psychopaths talking about another CB losing credibility is almost pathetic. These people get paid for this shit. Piss off.
Ha ha hahahahahahhahahah *whew* heh. Ha hahahahahahahahah!
China opens up 7.8%
You see, the value of Chinese stock grew 14x since 2005; its value grew 80%+ from $5.7 trillion in Jan 2015 to $10.3 trillion in June. Every village idiot could have predicted that Chinese stock was due for a correction sometime in the past 10 years, and every village idiot and his BFFs could have predicted the Chinese stock was due for a correction in the past half year. What we don't see often, however, are the real geniuses who could predict when Chinese stocks will rise through the roof.
But how much correction/ Our former house is still up over 400% since 2005. Used to be 485% up but came down a tad.
Yes, markets usually correct under normal conditions; but we have central bankers worlwide manipulating everything so it's hard to predict any correction and amount.
I smell gold backed yuan !
China "Crosses Rubicon" With Stock Bailout; BofA Says PBoC Risks "Hurting Its Credibility"
Just how much credibility does BofA have?
There you have it folks; BofA calls the Kettle Black. Amazing...
BofA and credibility?!?! LMFAO!!!!
This is exactly what Bofa wants. What a game! Every hedge fund, or high risk taker is going to slam the Chinese market up and then they will attempt to leave the Chinese Government with the tab. Good luck China, no, on the other hand, I hope you get your ass handed to you. Blatent, outright announcement of stepping in too prop up a stock market??? Come on! These crooks are running out of lies. Despite what many say, the good always prevails. The cards are coming down. Way to go Greece!
with "housewives and banana vendors" feverishly buying stawks on margin we knew this would end badly. just didn't think it would happen so soon!
FOMC, ECB, BOJ, SNB: "Come on in; the water's fine."