The recent stock market trends have experienced a transition from a boom to a cooling down. Before the National Day holiday, the A-share market surged by over 600 points in just 5 trading days. However, after the holiday, the market showed a cooling trend, with the Shanghai Composite Index plummeting by more than 400 points in just two days, October 8th and 9th, with many individual stocks completing a roller coaster ride.
Accompanying the rise and fall of A-shares, the impact of banking policies has been evident. For instance, on September 24th, when the A-share market began its significant increase, People's Bank of China Governor Pan Gongsheng announced at a press conference held by the State Council Information Office that the central bank would create new monetary policy tools to support the stable development of the stock market. The main content included two points: first, the creation of a swap facility for securities, funds, and insurance companies, with the stipulation that funds obtained through this tool can only be used to invest in the stock market. Second, the establishment of a special re-lending facility for stock buybacks and increases. It was due to this policy that the A-share market welcomed a significant uptrend.
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However, after the National Day holiday, the direction of the A-share market changed. On October 8th, the first trading day after the holiday, the A-share market opened high and closed low. On that day, news spread that financial regulatory authorities were strengthening supervision, and bank credit funds were strictly prohibited from entering the stock market in violation of regulations. Subsequently, several banks issued statements prohibiting credit funds from flowing into the stock and real estate markets. This news also became one of the drivers of the stock market's correction after the National Day holiday.
On one hand, Governor Pan Gongsheng stated at a press conference that the central bank would create new monetary policy tools to support the stable development of the stock market. On the other hand, financial regulatory authorities strengthened supervision and strictly prohibited bank credit funds from entering the stock market in violation of regulations. The two seem somewhat contradictory and do not appear to be consistent. So, how should we view the emergence of this situation? Or how should we view the financial regulatory authorities' strict prohibition of bank credit funds entering the stock market in violation of regulations against the backdrop of the central bank creating new policy tools to support the stable development of the stock market?
In fact, this situation is not difficult to understand, and there is no contradiction between the two. In reality, the financial regulatory authorities have always been consistent in their attitude towards bank credit funds entering the stock market, which is to strictly prohibit bank credit funds from entering the stock market in violation of regulations. It was the case before, and it remains so now.
However, this consistent policy is not contradictory to the central bank's creation of new monetary policy tools to support the stock market. Precisely because bank credit funds are strictly prohibited from entering the stock market in violation of regulations, this has led to the central bank creating new monetary policy tools to support the development of the stock market. The creation of new monetary policy tools by the central bank is to enable bank credit funds to enter the stock market in compliance with regulations. In other words, the central bank's creation of new monetary policy tools has paved the way for bank credit funds to enter the stock market in compliance with regulations. In the future, if bank credit funds want to enter the stock market, they can only do so through the new monetary policy tools created by the central bank.
Therefore, the financial regulatory authorities' strict prohibition of bank credit funds entering the stock market in violation of regulations is not contradictory to the central bank's creation of new monetary policy tools to support the development of the stock market. The two are actually dialectically unified. That is, bank credit funds cannot enter the stock market in violation of regulations, but they can enter the stock market in compliance with regulations through new monetary policy tools. Moreover, against the backdrop of bank credit funds being able to enter the stock market in compliance with regulations, it is even more important to strictly prohibit the occurrence of bank credit funds entering the stock market in violation of regulations. Therefore, the management's attitude towards the issue of bank credit funds entering the stock market in violation of regulations has always been consistent and strictly prohibited, and it will not relax the supervision of bank credit funds entering the stock market in violation of regulations just because bank credit funds can enter the market in compliance with regulations.
The financial regulatory authorities' approach is actually commendable. On one hand, this move is beneficial for bank credit funds to enter the stock market in compliance with regulations. Against the backdrop of credit funds being obstructed from entering the market in violation of regulations, qualified securities, funds, insurance, and other institutions can focus on choosing compliant paths to allow credit funds to enter the market in compliance with regulations. On the other hand, the consistent strict prohibition of bank credit funds entering the stock market in violation of regulations can greatly reduce the amount of bank credit funds entering the stock market in violation of regulations, avoiding a large influx of bank credit funds into the stock market. After all, a large influx of bank credit funds into the stock market can easily trigger significant market fluctuations and endanger the stable development of the stock market.
Therefore, for the healthy and stable development of the stock market, against the backdrop of the central bank creating new monetary policy tools to support the development of the stock market, the financial regulatory authorities should even more strictly prohibit bank credit funds from entering the stock market in violation of regulations. Allow bank credit funds to enter the stock market more through compliant channels, and the less the amount of funds entering the stock market in violation of regulations, the better, and ultimately completely eradicate the entry of bank credit funds into the stock market in violation of regulations.