China Equity Strategy_ PBOC Swap Facilities and Relending Program Offically Launched; Our Take

Summary of Key Points from the Conference Call Industry Overview - The conference call discusses the recent actions taken by the People's Bank of China (PBOC) regarding market stabilization measures, specifically the launch of swap facilities and a relending program aimed at supporting the stock market [1][3]. Core Insights and Arguments - PBOC Swap Facilities: - Launched with an approved size of Rmb200 billion, involving 20 financial institutions. Eligible collateral includes bonds, stock ETFs, REITs, and constituents of the CSI 300. Funds received can only be used for purchasing stocks or ETFs [2]. - Relending Program: - The first batch is sized at Rmb300 billion with an interest rate of 1.75% for a one-year tenor, extendable to three years. 21 financial institutions can borrow at this rate, while listed companies and their major shareholders can borrow at 2.25% to buy back shares or increase holdings [2]. - Market Implications: - The swift implementation of these measures is viewed positively, as it indicates a strong commitment from the PBOC to stabilize market sentiment and provide additional liquidity [3]. - Investment Positioning: - Large-cap stocks with attractive dividend yields and free cash flow yields are expected to benefit more from these programs due to their significant index weight and financial motivation for share buybacks [4]. Monitoring and Future Considerations - Key aspects to monitor include: - Execution of actual buying by the end of October. - Regular disclosures on the usage and progress of the two schemes. - Increased communication regarding the reform agenda and goals. - More details on the market stabilization fund expected by Q1 2025. - Signs of more forceful reflationary measures from fiscal policy [6]. Potential Beneficiaries - A list of 31 stocks identified as potential beneficiaries of the PBOC's programs, focusing on those with strong dividend yields and cash flow [4]. Additional Important Information - The report includes a disclaimer regarding potential conflicts of interest, as Morgan Stanley may have business relationships with the companies discussed [5][11]. - The research emphasizes the importance of compliance with applicable sanctions and export controls [11][12]. This summary encapsulates the key points discussed in the conference call, focusing on the implications of PBOC's actions for the stock market and potential investment opportunities.