Talk of stabilization funds boosts investor mood

Industry insiders and experts stated that any market support measures, like the stabilization fund on which many investors are speculating, would not only add liquidity to the currently faltering A shares but also improve sentiment generally, which is critical for the time being. According to Bloomberg on Tuesday, which cited sources familiar with the matter, Chinese authorities are attempting to raise roughly 2 trillion yuan ($278 billion), primarily from the offshore accounts of Chinese State-owned enterprises, as part of a stabilization fund to purchase A shares via stock connect programs connecting the Shanghai, Shenzhen, and Hong Kong bourses.


The widely anticipated buffer fund has not yet been addressed by officials, but the benchmark Shanghai Composite Index ended the day on Wednesday up 1.8 percent, regaining its psychological milestone of 2,800 points. The tech-heavy ChiNext in Shenzhen closed 0.51 percent higher, while the Shenzhen Component Index increased by 1%. First Seafront Fund head economist Yang Delong stated that strong regulations and substantial capital inflows are currently required for the A-share market because a decline has already been established. A significant decline in the indices would compel some leveraged money to liquidate its holdings, which would worsen the market’s already dire situation. According to Yang, real money is therefore essential right now to buck the trend and boost investor trust.


Yang Haiping, a researcher at the Institute of Securities and Futures at the Central University of Finance and Economics, concurred that the market, which is currently unduly negative in sentiment, needs to be introduced with the stability fund at this time. Although the US Federal Reserve is expected to keep interest rates high for a longer than anticipated period of time, China may continue to face pressure from capital outflows as it works harder to stabilize economic growth, further reduce financing costs, and get ready for any potential external financial stress. According to Yang, the stabilization fund will contribute in resolving these problems.



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