MNI China Daily Summary: Tuesday, April 8

POLICY: China’s state-backed Central Huijin Investment fund said it would scale up purchases of exchange-traded funds as equity markets suffer shocks from the China-U.S. trade war.

POLICY: The People’s Bank of China will provide Central Huijin with support from its relending facility to ensure the stability of stock markets, according to a statement on the Bank’s website. The Bank will support Central Huijin to increase holdings of stock market index funds, and Huijin will get “sufficient relending support as needed," the Bank said. 

POLICY: The PBOC set its U.S. dollar-yuan fixing at its highest level in 19 months as the currency suffered downward pressure amid an escalating trade war. The central parity rate printed at 7.2038, the first time it has breached 7.20 since September 2023.

POLICY: China has raised solvency ratios for insurance funds' equity asset allocations by 5%, the National Financial Regulatory Administration said, adding that it aimed to raise support for the capital market and the real economy.

POLICY: China will take countermeasures to resolutely safeguard its own rights and interests should the U.S. further escalate tariffs, said a spokesman of the Ministry of Commerce in a statement on the ministry website.

LIQUIDITY: The PBOC conducted CNY167.4 billion via 7-day reverse repos, with the rate unchanged at 1.50%. The operation led to a net injection of CNY102.5 billion after offsetting maturities of CNY64.9 billion today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) increased to 1.7767% from 1.7427%, Wind Information showed. The overnight repo average rose to 1.7517% from 1.7436%.

YUAN: The currency weakened to 7.3368 against the dollar from the previous 7.3149. The PBOC set the dollar-yuan central parity rate higher at 7.2038 on Tuesday, compared with 7.1980 on Monday. The fixing was estimated at 7.3297 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 1.6560%, up from the close of 1.6400% previously, according to chinamoney.com.cn.

STOCKS: The Shanghai Composite Index rose by 1.58% to 3,145.55, while the CSI300 index was up 1.71% to 3,650.76. The Hang Seng Index gained 1.51% at 20,127.68.

FROM THE PRESS: China’s banks face additional loan demand and net interest margin pressure after the U.S. imposed reciprocal tariffs, said Dai Zhifeng, director at the Zhongtai Securities Research Institute, adding that asset quality was expected to remain stable. Banks with higher foreign trade exposure will be hit more significantly than those with a higher proportion of retail customers, Yicai news agency reported, noting that over half of banking stocks fell on April 7 by more than 5%.

China’s foreign exchange reserves reached USD3.24 trillion at the end of March, up 0.42% from February, Securities Daily reported. Looking ahead, reserves are expected to remain stable and help maintain the yuan at a reasonable and balanced level, despite potential external shocks, according to Wang Qing, chief macro analyst at Orient Securities. The nation’s central bank added 90,000 ounces of gold to reserves in March, the fifth consecutive month of increases, Pang Ming, a senior researcher at the National Finance and Development Laboratory noted, adding that the precious metal has advantages in hedging inflation with long-term value.

China’s A-share market could first decline before rising in late April, Yicai.com reported, citing analysts from China Merchants Securities. The market may rebound in late April if the Politburo signals quicker fiscal spending or additional pro-growth policies, along with the ending of firm’s performance disclosure window and easing external shocks, the analysts said. State-owned companies China Guoxing Holdings and China Chengtong Holdings said financial subsidiaries have increased holdings of central government-owned enterprises, technology-related and ETF stocks, after Central Huijin Investment, a state-owned investment institution, announced additional purchases of ETFs to stabilise the market on Monday.