The Chinese central bank’s liquidity boosting tool sparks a 3 per cent surge in Hong Kong’s Hang Seng Index

Hong Kong and Chinese stocks both rebounded from sell-offs after China’s central bank kicked off a US$70 billion financing facility to fund institutional buying and traders bet on more fiscal stimulus to shore up growth.

The Hang Seng Index jumped 3 per cent to 21,251.98 at the close, snapping a two-day, 11 per cent decline. Still, the benchmark tumbled 6.5 per cent for the shortened trading week, as the city’s financial markets will be shut on Friday for a public holiday. The Hang Seng Tech Index gained 2.1 per cent on the day.

The CSI 300 Index rose 1.1 per cent, bouncing back from a 7.1 per cent slump a day earlier. The Shanghai Composite Index finished 1.3 per cent higher. Trading on the mainland’s markets remained wild, with the 10-day realised volatility of the CSI 300 rising to its highest since August 2015, according to Bloomberg data.

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Sentiment on the Hong Kong and mainland’s markets seemed to have stabilised after the People’s Bank of China (PBOC) started the swap facility with an initial size of 500 billion yuan (US$70.7 billion). Under the programme, qualified brokerages, mutual-fund firms and insurance companies will be able to swap their holdings of bonds, stock exchange-traded funds and stocks on the CSI 300 for highly liquid assets such as government bonds and central-bank bills, the PBOC said in a statement on Thursday. The scale can be expanded and applications from qualified institutional will be accepted immediately, it said.

The swap facility is part of a combined 800 billion yuan in new funding tools announced by the PBOC last month to bolster the stock market. The package also includes a 300 billion yuan relending programme to finance stock buy-backs and stake increases by listed companies and major shareholders.

Investors will closely scrutinise a press conference by Finance Minister Lan Foan on Saturday. Hopes are high that Lan will announce or offer clues on the much-heralded fiscal stimulus after top leaders signalled an all-out pivot to prop up economic growth.

“The steep dip in Chinese equities could present a more tempting entry point for investors, banking on the hope that Beijing will eventually roll out a fiscal lifeline,” said Stephen Innes, managing director at SPI Asset Management in Bangkok.

Chinese and Hong Kong markets have emerged as the best performers among the world’s major benchmarks over the past month, with the key equity gauges rising at least 20 per cent in the span and turnovers jumping to record highs. For the bull run to sustain, Beijing will need to deliver on no less than 3 trillion yuan in fiscal packages to revive economic growth, according to Daiwa Securities.

As part of the fiscal stimulus, China’s legislative body will probably approve the issuance of 2 trillion yuan of government bonds later this month, said Lu Ting, chief China economist at Nomura Holdings.

The stock markets will remain volatile until more fiscal policies and measures to support the property market are implemented, which will make re-rating of stocks more sustainable, according to HSBC Jintrust Fund Management.

All but five stocks on the 82-member Hang Seng Index rose. Ping An Insurance Group surged 5.9 per cent to HK$51 and China Life Insurance advanced 4.7 per cent to HK$16.46 on optimism they will be eligible to participate in the swap facility. Alibaba Group Holding rallied 2.8 per cent to HK$105.80 and Tencent Holdings advanced 1.1 per cent to HK$438.80.

On the mainland, both Guotai Junan Securities and Haitong Securities jumped by the 10 per cent daily limit in Shanghai after the two brokerages unveiled detailed merger plans. The stocks resumed trading after being suspended since September 5.

Other major Asian markets trader higher after US stocks rose to new highs overnight. Japan’s Nikkei 225 edged up 0.3 per cent, while South Korea’s Kospi gained 0.2 per cent and Australia’s S&P/ASX 200 added 0.4 per cent.

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