China's Central Bank Will Prop Up Country's Stock Market

Hold on there, China bears. The People’s Bank of China (PBoC) just might save Shanghai and Shenzhen stocks from another bear market year. China’s PBoC will buy local listed shares to prop up a stock market that’s down over 25% in the last 12 months.It’s already working. The X-Trackers China CSI-300 A-Shares (ASHR) ETF is up 5.5% year-to-date ending Tuesday. That’s better than the S&P 500 and the MSCI Emerging Markets Index.The Chinese central bank has taken its cue from other plunge-protection units.There is now an established precedent for central banks becoming active players in equity markets, so the PBoC is no outlier. When shares in the Hong Kong market fell over 50% in 1997 during the Asian Tigers crisis, the Hong Kong Market Authority intervened. Today the Bank of Japan owns more than 4% of the Japanese equity market and is expected to pump another $56 billion into the market this year.“We think 2019 will see the People’s Bank of China become a player in Chinese equities,” says Jim McCafferty, a research analyst for Nomura in Hong Kong. Other government agencies will follow the bank’s lead into equity, propping up prices of Chinese stocks.