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China buys top bank shares

China buys top bank shares
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China is moving to support its stock market by buying shares of the country’s four biggest banks.

The domestic arm of China’s sovereign wealth fund bought the shares in the secondary market on Monday.

It was Beijing’s first move to support stock prices since the 2008 financial crisis.

Analysts said this may be the start of an easing of monetary policy by the government and it sends the signal that Beijing is prepared to stand behind the banks in times of trouble.

The purchases of beaten-down bank shares may be one of several small steps along an easing path that will eventually leads to interest rate cuts.

“This is the start of something more concerted from Beijing,” said Hong Hao, a global equity strategist at China International Capital in Beijing.

“Somebody had to pull the trigger at some point. But it’s very difficult to say when the central bank will loosen monetary policy.”

The initial share purchases were relatively small according to two of the banks that received investment.

“It also shows that China’s government is behind the banks and believes in the banks,” said Mike Werner, an analyst with Sanford Bernstein.

“They wouldn’t be doing this if, for instance, they were concerned about these banks having to raise capital in the near future on an industry-wide basis.”

Unless economic conditions deteriorate, China may opt for smaller, intermediate steps before cutting rates, such as aiming to ease strains in small-business lending.

Beijing has reason to be wary of flooding the economy with easy money like it did during the financial crisis. Some of that money found its way into questionable projects that may lead to a worrisome spike in loan defaults.