China: Policy support limits equity downside – Societe Generale
Societe Generale’s Michelle Lam assesses recent Chinese policy moves to support China equities following the latest correction. She highlights expanded use of the SFISF, cheaper and more permanent buyback relending, and informal IPO curbs.
Societe Generale's Michelle Lam outlines recent Chinese policy actions aimed at stabilizing equities following a recent correction. The report highlights expanded usage of the SFISF, more accessible buyback financing, and informal restrictions on IPOs. These measures primarily strengthen a policy floor, limiting downside but not generating sustained upside for Chinese equities.
Authorities have intensified efforts to stabilize the market following the recent downturn. The additional liquidity provided by these measures could amount to RMB100bn through the SFISF and potentially RMB200bn from share-buyback and increase loan facilities at cheaper interest rates. However, the experience since these facilities began in late 2024 suggests they have been ineffective in generating sustained upside.
Liquidity constraints are not the main issue for Chinese equities; lower financing costs can make buying shares more appealing, but they cannot overcome concerns over earnings growth, margin compression, subdued domestic demand, and broader macro uncertainty. The authorities aim to bolster the policy floor, but the measures are more effective at curbing downside than driving sustained upside.
Their impact may primarily come from signaling, demonstrating policymakers' willingness to intervene when markets face significant pressure, which bolsters investors' perception of a policy floor.
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