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Shares rise 1.78% on debt exchange plan
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THE Shanghai index rose today to its highest level in more than six weeks as lenders soared amid talk of China’s debt exchange plan controlling credit risks of local-government financing vehicles.
The benchmark Shanghai Composite Index jumped 1.78 percent, or 58.42 points, to 3,349.32, the highest since January 27. Turnover was 407.2 billion yuan (US$65.7 billion) at the trading close.
The Ministry of Finance unveiled a plan to allow local governments to convert 1 trillion yuan of maturing expensive debt into lower-yielding municipal or provincial notes, according to a statement released on March 8.
Speculation quickly spread that the quota may be expanded to 3 trillion yuan and the central bank would directly purchase debts from local governments, which some analysts interpreted as a form of quantitative easing.
“This move implies a significant step forward in China’s deleveraging process,” Helen Qiao, economist with Morgan Stanley said in a note earlier. “We expect a gradual implementation of debt replacement to help address the structural imbalance in the financial sector, where lending interests are forced higher due to ambiguity in local government borrowing.”
China International Capital Corp said in a report that the swap will significantly repair banks’ balance sheets and help them recover valuations.
Industrial Bank shares soared 9.6 percent to 15.97 yuan. Shanghai Pudong Development Bank jumped 6.1 percent to 15.12 yuan.
The market was also boosted by expectations the central government will step up monetary easing to bolster the economy after data pointed to weaker-than-expected growth.
The People’s Bank of China today injected 25 billion yuan into the money market via reverse repurchase agreements, helping ease liquidity amid a flood of new share sales. Eleven companies opened for subscriptions today, following 10 IPOs yesterday.
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