China has announced that it will be injecting up to 1.2 trillion yuan, or around $174 billion, worth of liquidity to help stabilize the country's financial markets as it officially reopens this week. The country's central bank plans to inject the amount through a reverse repo operation.
Financial markets in China will reopen this week after a mandated extended break following the sudden outbreak of the Wuhan coronavirus, which has already claimed the lives of more than 300 people so far. The People's Bank of China announced on Sunday that the amount it will be injecting into the markets will be 900 billion yuan higher compared to the injection it made last year.
The bank further stated that the added liquidity should provide enough support for companies affected by the recent viral epidemic. Based on official central bank data, the 1.05 trillion yuan of reverse repos that will mature on Monday should equate to about 150 billion yuan in net cash injected into the markets.
Stocks and trading activity this week are expected to be very erratic and unpredictable given the longer-than-usual break for the Lunar New Year holiday. Trading officially halted on January 23 with exchanges planning to reopen last week. However, the Government issued an order for a slight extension due to the ongoing epidemic.
The China Securities Regulatory Commission (CSRC) mentioned in a statement that there will be no further delays in the reopening of the markets. The regulator also assured companies and traders that it has taken all necessary actions to balance out various factors in light of the recent epidemic. The regulator added that it believes the impact of the outbreak should only be short-term.
As part of its balancing efforts, the CSRC stated that companies that had expiring stock pledge agreements could apply for extensions. The CSRC also encourages corporate bond investors to extend the maturity dates of their respective debts.
Other measures to alleviate market panic over the recent epidemic included the possible launch of hedging tools for the A-share market. The regulator pointed out what measures they will be implementing is meant to ensure that improved market expectations and prevent irrational behavior.
