China’s financial system is highly centralised and authorities are now ‘encouraging’ banks to buy ‘virus-control bonds’, writes Shuli Ren
Florist Zhao Yuanyuan arranges flowers in her shop in Shanghai, China, ahead of Valentine’s Day. Picture: AFP/NOEL CELIS
When things get tough, stock prices become a tug of war between liquidity and fundamentals. The outlook for profits is bad, but if the central bank cuts interest rates and puts listed companies on life support, stocks may well brush off this black swan event. Take corporate bonds. While the US market practically froze up this week, Beijing is encouraging companies to issue so-called “virus-control bonds”. The issuance criteria are low: companies need only devote 10% of the proceeds to virus control; the rest could be all for refinancing. The interest rate is also low, with the average coupon only 3%, even lower than the People’s Bank of China’s benchmark one-year, medium-term lending rate.
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