At yesterday's financial press conference, which market reaped the greatest benefits? Some say real estate, others the stock market, and still others the bond market.
The stock market's surge yesterday has already provided the answer. Many people haven't understood why—doesn't the good news for real estate smell sweet? It does, but the stock market represents systemic innovation, altering some fundamental rules. This marks the true beginning of China's stock market stepping onto the world stage.
Some might ask, is it as exaggerated as you say?
First, we must understand the most basic logic: whether it's the stock market or the bond market, these are all financial markets. The most fundamental logic of financial markets is the issue of money supply—more money in, and the market rises; more money out, and the market falls. Even divine intervention cannot change this logic.
Why is that the case? For example, suppose the total market value of the stock market is 100 trillion, and if it's to rise to 120 trillion, it means an additional 20 trillion in funds must flow in. The reverse is also true.
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Therefore, the fundamental reason for the sluggishness of China's stock market lies in the lack of incremental funds; everyone is playing a game of existing capital. The main reasons are twofold: first, the U.S. dollar's interest rate hikes have led to a large-scale withdrawal of foreign capital, and second, domestic investors, sensing the wrong trend, have also followed suit and withdrawn a portion.
Thus, the most significant innovation by the central bank this time is the introduction of two new monetary policy tools for the stock market.
The first tool is a 500 billion swap facility for securities, funds, and insurance companies.
Governor Pan's exact words were, "If 500 billion is not enough, then another 500 billion will come." This is not an empty promise. It is a mechanism, meaning this tool can cycle indefinitely.
Specifically, what does this tool mean?In simple terms, the central bank has made it very clear that it supports qualified securities, funds, and insurance companies to use their own bonds, stock ETFs, and Shanghai-Shenzhen 300 constituent stocks as collateral to exchange for high-liquidity assets such as national treasury bonds and central bank bills from the central bank.
This means that securities funds and insurance companies can use the stocks and bonds they hold as collateral to borrow money directly from the central bank.
Many people say that we have a lot of silent capital, and many stocks and bonds are not traded for a long time, which are also silent funds, and now they can be revitalized.
Some time ago, many experts were calling for the establishment of a stabilization fund. This time, a reporter also asked about this matter, and President Pan said that it is under study. In fact, this kind of policy tool is equivalent to the central bank directly adding leverage to institutions, isn't it a stabilization fund?
Some time ago, Gao Shanwen, the chief economist of Anxin Securities, said that the ultimate solution to the current real estate crisis depends on whether the central bank can put its own balance sheet on the line.
In fact, the stock market is the same. Now the central bank is expanding its balance sheet to inject liquidity into the stock market, which is the same principle. The central bank has put its own balance sheet on the line, so can the stock market still lack liquidity?
Some people say, is there no risk in such operations?
Many people should have an impression that this kind of operation is a policy tool commonly used by the Federal Reserve. For example, in 2023, when banks such as Silicon Valley Bank went bankrupt, the Federal Reserve introduced the Bank Term Funding Program (BTFP), which is the bank's mortgage of its own bonds for cash to solve the liquidity crisis.
The second tool is the 300 billion yuan repurchase increase in loans.
President Pan also said that if 300 billion yuan is not enough, then another 300 billion yuan will come, and this can also be infinitely recycled.This tool is equally far-reaching. The central bank lends money to commercial banks at the most favorable interest rate of 1.75%. After adding 0.5%, commercial banks lend money at a low interest rate of 2.25% to listed companies that want to repurchase and increase their holdings.
There is no distinction between state-owned and private enterprises; they are treated equally.
Some may say, "Isn't this not much different from ordinary loans? Would listed companies be willing to borrow?"
Then you might be really mistaken. For those blue-chip stocks, this money can almost achieve risk-free arbitrage.
To put it bluntly, not only can you repurchase and increase holdings to support the market, but you can also earn a risk-free profit. Why not do it?
For example, the interest rate for borrowing this money is 2.25%. As long as the listed company operates well and increases its dividends above this ratio, it is direct arbitrage.
Take Moutai's dividends as an example. Twice a year, it adds up to about 3.25%. The extra 1 percentage point is the net profit from arbitrage.
If the company can continue to operate well in the future, wouldn't it mean the more it repurchases, the more it earns?
In this way, listed companies not only have the enthusiasm for repurchasing and increasing holdings, but also the enthusiasm for dividends and a new motivation to operate the company well. Isn't this a major benefit for the entire stock market?
This tool is also very common in the US stock market. Why does the US stock market continue to rise? Financing and repurchasing is one of the very important systems.Over the past two years, despite the continuous interest rate hikes by the Federal Reserve and the increased cost of financing, it has not deterred the enthusiasm of U.S. listed companies for stock buybacks, because the more they repurchase, the faster their stocks rise, easily covering the financing costs.
The Federal Reserve is one of the behind-the-scenes drivers of the financing buyback trend, as they continuously support U.S. banks in providing repurchase loans to listed companies.
Now that we also have these two important monetary policy tools, it means two things.
The first is that the central bank has personally stepped in to save the market; the second is that this is a systemic innovation, as long as the central bank is willing, China's stock market will have unlimited liquidity from now on.
Why didn't we use such a good tool in the past?
Simply put, it's because of the concern about risks. Our financial operations have always been cautious, and now that they have been relaxed, there is no longer any mental burden.
This is also equivalent to calling out to dollar capital, come to China quickly! They must especially understand the power of these two tools for the stock market.
China's stock market is beginning to enter the world class, and this is the power of systemic innovation.