China Bans Selling, Plans Massive Liquidity Injection To Prevent Market Crash

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China Bans Selling, Plans Massive Liquidity Injection To Prevent Market Crash

Judging by the collapse in Chinese futures and the Offshore Yuan over the past week, China’s key cash equity index – The Shanghai Composite – is set to plunge around 6-8% as the market re-opens for the first time since Lunar New Year (and the coronavorus chaos).

China stock futures have tumbled…

Source: Bloomberg

And Offshore Yuan is fighting at the 7.00/USD level…

Source: Bloomberg

Which of course will not do for the nation has to maintain the appearance of a minor flesh-wound than a catastrophic coronary. And so, as Bloomberg reports, China unveiled a raft of measures over the weekend to aid companies hit by the coronavirus outbreak and also shore up financial markets.

Quarantative easing?

The People’s Bank of China announced that the total injection announced was 1.2 trillion yuan, the largest single-day addition of its kind in data going back to 2004.

The money will be supplied using reverse repurchase agreements to ensure liquidity is “reasonably ample” during the outbreak, according to the PBOC.

The new measures follow the announcement last week that China’s biggest banks will lower interest rates for firms in Hubei, the center of the outbreak.

However, as Tommy Xie, an economist at Oversea-Chinese Banking Corp notes, the net effect of this admittedly huge liquidity injection is much lower as there are more than 1 trillion yuan of short-term funds scheduled to mature on Monday.

The amount of the net injection isn’t huge. The PBOC may want to retain some flexibility, which means it can add more liquidity in the rest of the week if the sentiment is too bad.”

Source: Bloomberg

Finally, we wonder if even this additional liquidity injection will be big enough as judging by Dr.Copper, the Chinese economy is about to be hit by the biggest shock in recent history…

Source: Bloomberg

And China’s credit impulse – the lifeline of its economic growth – is barely positive and rolling over…

Source: Bloomberg

In addition to the concrete measures, Bloomberg notes that senior officials from various regulators and the central bank put out statements urging brokerages and funds to guide investors to “rationally and objectively” evaluate the impact of the epidemic, calling it “short-term and temporary.”

Financial regulators said they have “full confidence” they can keep the economy stable in the long term, according to the Saturday statement, which urged investors not to be affected by “irrational sentiment.”

We are not quite sure what they mean by “irrational sentiment,” as it seems entirely rational to expect economic growth to slow and earnings to be pressured lower given the nation is practically on total lockdown for the foreseeable future.

And if you think that is just conjecture, here is a local business owner with the truth on the ground…

1.2 trillion yuan is nothing like enough…and they have a plan for that – ban selling!

And 21st Century Herald confirms that China’s securities regulator CSRC has reportedly notified brokerages to suspend short selling of stocks from Feb 3

So the Chinese ‘market’ is now Hotel California – you can check out any time, but you can never leave!

Tyler Durden

Sun, 02/02/2020 – 12:35

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