"5000 Billion Swap Facility Launched, CITIC Securities First to Benefit"
Incremental capital is coming to the stock market! In just a short span of 15 days, the central bank's 500 billion yuan "swap facility" has made substantial progress, with CICC (China International Capital Corporation) and CITIC Securities having submitted their proposals, the latter's reported quota being around 10 billion yuan. So, how does the swap facility affect the stock and bond markets? Some institutions believe that high dividend assets will receive a boost. It may also impact the supply and demand relationship in the bond market.
CITIC Securities takes the first sip of the "swap facility" soup!
On October 11th, the central bank's establishment of a 500 billion yuan swap facility took effect, with CICC and CITIC Securities having submitted their proposals, CITIC Securities' reported quota being around 10 billion yuan.
This move has caused a ripple effect, leading to CICC's stock price hitting the upper limit during trading, and CITIC Securities' stock price increasing by more than 3% during trading.
It is understood that the SFISF (Securities, Fund, Insurance Swap Facility) is an innovative monetary policy tool that supports qualified securities, fund, and insurance companies to exchange bonds, stock ETFs, and constituents of the CSI 300 index for high-grade liquidity assets such as government bonds and central bank bills from the People's Bank of China.
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BoShi Fund's Index and Quantitative Investment Department stated that this tool combines overseas experience with the local legal framework, revitalizing existing capital to be invested in the equity market without issuing new currency. This helps to enhance the liquidity of the equity market and investor confidence, supporting the stable development of the capital market.
It may affect the supply and demand relationship in the bond market, thereby influencing the price trends in the bond market.
CITIC Securities secures the first deal.
On October 11th, according to the central bank's daily bulletin, the "Securities, Fund, Insurance Swap Facility (SFISF)" was established from that date, and qualified securities, fund, and insurance companies were accepted for application.
It is understood that CITIC Securities and CICC have already submitted their proposals, with CITIC Securities' reported quota being around 10 billion yuan.Affected by the news, China International Capital Corporation (CICC) hit its upper limit in the afternoon, and CITIC Securities' stock price rose by more than 3% during the trading session.
Looking at the timeline, the policy was implemented very quickly. From September 24th to October 10th, the implementation of the SFISF (Securities Finance and Investment Support Facility) was only 15 days after the "announcement".
Why has the SFISF attracted so much market attention?
It was proposed by the central bank governor Pan Gongsheng on September 24th and officially established on October 10th, with the central bank's initial operation scale reaching 500 billion yuan. At that time, Pan Gongsheng stated at a press conference: "Supporting qualified securities, fund, and insurance companies to obtain liquidity from the central bank through asset collateralization, this policy will greatly enhance the institutions' ability to obtain funds and increase their stock holdings." Additionally, Pan Gongsheng emphasized that the funds obtained through this tool can only be used for investment in the stock market.
Wei Fengchun, the chief economist of Chuangjin Hexin Fund, said that according to public documents, the 500 billion yuan swap facility requires securities, fund, and insurance business departments to declare, using their low-liquidity assets as collateral to borrow high-liquidity national bonds or central bank bills from the central bank. The policy intention is to encourage these departments to sell these bonds or bills and use the cash obtained to buy stocks. After the quota is met, the quota is released again for further cycles, with the aim of increasing liquidity in the stock market.
This also means that incremental funds for the stock market are coming.
However, non-bank financial institutions have fewer ways to obtain incremental funds compared to banks. Pledging bonds, stocks, and other assets in hand is a common way to obtain funds. The collateral ratio for such assets is relatively low. Therefore, the establishment of the SFISF by the central bank will greatly enhance the ability of non-bank institutions to obtain funds and increase their stock holdings.
However, it should be noted that not all non-bank institutions can participate in the SFISF. On May 31st this year, the central bank determined 51 primary dealers for open market operations in 2024, and CITIC Securities and CICC are the "only two" qualified securities institutions.
Some industry insiders said that CICC is expected to obtain the second "entry ticket" after CITIC Securities. Securities companies such as Huatai Securities and Guotai Junan, which rank high in performance and net assets, and have a securities company classification evaluation result of AA, also have a relatively high possibility of approving the swap facility plan.
How does SFISF affect the stock and bond markets?What kind of assets will the incremental funds brought into the market by SFISF buy?
According to the analysis of the macro team at Minsheng Securities, after the central bank swaps assets with non-bank institutions, the potential arbitrage space for the relevant institutions is mainly reflected in the difference between the stock dividend rate and the pledged repurchase rate. This implies that high dividend stocks, due to their stable dividend-paying ability, have become the market's favored choice.
In addition to the potential "arbitrage space," in the context of a decline in market-wide interest rates and a scarcity of high-return assets, dividend assets that offer continuous and stable dividends with appropriate dividend yields will become an important allocation for investors, especially institutional investors.
It is widely believed in the industry that high dividend assets such as those with "China" in their names may be the preferred choice for institutions to carry out swap facilities, and the State-owned Assets Supervision and Administration Commission (SASAC) has clearly studied the inclusion of market value management in the performance assessment of central enterprise leaders, which is also conducive to the valuation increase of "China" stocks.
The semi-annual reports for this year show that many top securities firms have significantly increased the amount of other equity instruments at the end of the period in their semi-annual reports. For example, CITIC Securities increased the total amount of other equity instruments from 9.514 billion yuan to 67 billion yuan, a growth of 604.30%. Guotai Junan increased from 1.877 billion yuan to 5.787 billion yuan. China International Capital Corporation increased from 0 to 1.787 billion yuan.
It is understood that the dividends and bonuses obtained during the holding period of "other equity instruments" are included in investment income, but the fair value changes are included in other comprehensive income, which does not affect the current net profit. From this perspective, the incremental funds brought into the market by securities firms through SFISF naturally tend to favor the "dividend" attribute of assets.
It is worth mentioning that from the market perspective, high dividend stocks with "China" in their names are more popular in the market. Among them, Ping An State-owned Enterprise Win-Win ETF rarely increased by more than 9.55%, Guotai Central Enterprise Win-Win ETF and Guotai China Infrastructure ETF increased by more than 8%. More than 10 stocks such as China Railway, China Railway Construction, and China Construction have hit the daily limit.
At the same time, stocks heavily held by securities firms have also attracted market attention. In terms of the market value of stocks held by a single securities firm, by the end of the second quarter, Jiangsu Bank was held by Huatai Securities with a market value of 6.861 billion yuan, ranking first; followed by Muyuan Foodstuff, which was held by CITIC Construction Investment with a market value of 1.636 billion yuan; and then Sinopec, which was held by Guosen Securities with a market value of 1.496 billion yuan.
Although the incremental funds brought into the market by SFISF are beneficial for boosting high dividend stocks, a large amount of assets such as government bonds and central bank bills entering the market may affect the supply and demand relationship in the bond market, thereby affecting the price trend of the bond market.
Li Zhan, Chief Economist of the Research Department of China Merchants Fund, pointed out that for the bond market, it is highly likely to balance the supply and demand relationship of bonds, promote the rise of bond market interest rates, and then highlight the stock-bond seesaw effect, with more bond market funds flowing into the stock market.Aggressive Securities Proprietary Trading
It is understood that the funds that securities firms participate in SFISF should belong to proprietary business, not asset management business. Therefore, the proprietary business of securities firms may be about to enter an "explosive period."
From the perspective of the holders of the CSI 500 ETF, the influence of the proprietary business of securities firms is significantly increasing. Data shows that among the first batch of ten CSI 500 ETFs issued, seven products have three or more securities firms' proprietary funds appearing among the top ten holders.
For example, among the top ten holders of the Jing Shun Great Wall CSI 500 ETF, there are proprietary funds from four securities firms: Guolian Securities, Great Wall Securities, Galaxy Securities, and Dongwu Securities. In the top ten holders list of the Morgan CSI 500 ETF, there are proprietary funds from five securities firms: Guoxin Securities, Guotai Junan Securities, Zheshang Securities, Western Securities, and Tianfeng Securities. Almost all of the top ten holders of the Huatai Bo Rui CSI 500 ETF are proprietary funds of securities firms.
In addition to ETF investments, data shows that the scale of securities firms' proprietary business holdings in the A-share market is also considerable. As of the end of the second quarter of 2024, 50 securities firms appeared among the top ten circulating shareholders of 416 A-share companies, with a total market value of about 46.52 billion yuan. Among them, CITIC Securities holds 83 A-share companies, with a total market value of about 12.918 billion yuan, ranking first among all securities firms in both the number of companies held and the market value of holdings.
At present, the expanding proprietary business has become the "ballast stone" of securities firms' performance. In the first half of this year, more than half of the 43 listed securities firms have proprietary investment income accounting for more than 40% of their revenue. Among them, Guolian Securities, Hongta Securities, and Tianfeng Securities' proprietary investment income accounted for 109.22%, 98.35%, and 90.68% of their revenue, respectively.
Taking CITIC Securities, which reported SFISF this time, as an example, in the first half of this year, its securities investment business achieved a revenue of 13.404 billion yuan, while the same period last year was 10.213 billion yuan, with a year-on-year increase of 31.24%, ranking first among the 43 listed securities firms.
If CITIC Securities successfully obtains the "first order" SFISF, it will qualify to mortgage assets with relatively poor liquidity to the central bank, thereby enhancing its capital strength and further improving the competitiveness of its proprietary business.
Huatai Securities infers that the swap convenience tool is mainly used for proprietary funds. Taking securities firms as an example, as of the end of the first half of 2024, the scale of the securities industry's proprietary business is 6.14 trillion yuan, and the proportion of stocks in securities firms' proprietary positions is about 7%-8%, while the proportion of bonds is 65%-70%. It is estimated that the scale of assets that securities firms can swap may be around 400-500 billion yuan.