China’s Stock Support Boosts Asian Markets
China’s central bank pumped the entire Asian market by introducing a plan to support the stock market through share repurchases by companies and major shareholders. China, the world’s second-largest economy, gained investors’ confidence after this strategic move.
The government issued guidelines for state banks to grant loans for stock repurchases. These loans are available to companies and top shareholders. Only 21 designated financial institutions are providing the money. The maximum interest rate for these loans is 2.25%.
The bank has announced plans for the upcoming loan dispersals. Following this announcement, the Asian market showed a significant upward trend. Shanghai gained 2.83%, while Hang Seng rose by 3.48%. Taiwan saw an increase of 1.85%. Other Asian markets also closed positively.
This decision of China tends to be in favour of the Chinese economy as it reflects the confidence of the government and corporations in the country’s growth. This attracted investors all around the globe and indicates the health of the country as investors anticipate stability and potential market gain.
The Central Bank launched a re-lending program worth 300 billion yuan. This allows financial institutes to borrow money from the People’s Bank of China for share purchases by listed companies or their major shareholders. This re-lending will be done at a set interest rate of 1.75% for 21 eligible financial institutions, policies, and banks. This loan can only be applied at the start of each quarter said People’s Bank of China.
The Upcoming Future of China’s Economy
With the money coming into the market, more benefits are waiting for the investors and the traders on their doorsteps, as such a huge amount of money brings in liquidity into the market. This liquidity will attract traders and will increase the stock average movement.
The constant injection of capital in the market will bring stability to the stocks during volatile periods. This stability minimises the risk of the market moving downwards.
In an active market situation, the market reaches its peak and shows bullish sentiments. This environment encourages fundraisers to enter the market. Companies find it easier to raise capital during a bull run. As a result, more businesses conduct Initial Public Offerings (IPOs), leading to increased business growth.
Stock Manipulation and Government Power Waiting Doorstep
With easy access to money, concerns exist for sector or stock manipulation, as pumping huge amounts of money can easily inflate stock prices, leading to stock or market bubbles if not managed carefully.
Raising funds from the government sounds good, but failing to generate enough returns could give the government potential control. In the long term, if companies don’t produce the desired results, the government might increase its majority control over them.
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