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6 Dec 2021

Broker Shares Rise over Expectations of PBOC Policy Relaxation as China Bonds Rally

The Index Today

The Index Today — China’s benchmark yield has hit a record low since July after government bonds rallied even as expectations loom over the laxation of policy by the central bank in an effort to facilitate economic growth.

The People’s Bank of China (PBOC) waived the worldwide practice of issuing stimulus to combat pandemic-related fiscal crises to relieve policy. This comes as the country’s economic scene is ravaged by legislative restrictions on sectors including technology and property.

Despite that, Yuan-denominated government bonds flourished in Asia over hopes that Beijing will preserve its liquidity.

According to Yifeng Wang of Everbright Securities Co., “China’s bond yields have room to fall further but the 10-year rate won’t drop much below 2.8% given the market had priced in slower growth and potential easing.” Wang also highlighted the possibility of PBOC decreasing the reserve-requirement ratio (RRR) by 50 basis points this month which could see an influx of 1 trillion Yuan ($157 billion) into the banking system.

Securities Daily reports that with some 950 billion Yuan of medium-term policy loans maturing on December 15th, the PBOC could curtail the RRR to aid in the repayment of debts.

This move has also led to a rise in the share market with the CSI 300 Financials hitting a record high of 2.4% in the past month.

Security companies accounted for 6 of the top 10 best performing firms on the benchmark CSI Index, drawing from the benefits of looser liquidity conditions.

Additionally, Bloomberg also reports a growth of 3% among brokerages under mainland China.

Li Gang Liu, an economist at Citigroup, wrote, “An earlier than market expected RRR cut should help stabilize and even boost market sentiments.”

On Monday, China’s high-yield dollar bonds witnessed a hike of as far as one cent on the dollar. According to Bloomberg, Sunac China Holdings Ltd. saw a 5.95% growth at 11:05am from 4.6 cents to 66.4 cents on the dollar.

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