“The Buttonwood SPV”: The Striking Details Of How China’s Central Bank Is Directly Buying Stocks
by Tyler Durden
ZeroHedge.com
03/31/2016
In the latest revelation of just how far China, and its central bank, are willing to go to prop up its ailing local stock market, on Thursday the official Shanghai Securities News reported that China’s foreign exchange regulator has bought mainland stocks worth over 27 billion yuan ($4.18 billion) via three low-profile investment firms it controls.
According to Reuters, Buttonwood Investment Platform Ltd, 100 percent owned by the State Administration of Foreign Exchange or SAFE (which in turn is directly controlled by the central bank, the People’s Bank Of China) and Buttonwood’s two fully-owned subsidiaries, have bought shares in a total of 13 listed companies, the newspaper reported, citing top 10 shareholder lists in the companies latest earnings reports.
The name of this special purpose entity refers to the Buttonwood Agreement, which took place on May 17, 1792, and started the New York Stock Exchange. This agreement was signed by 24 stockbrokers outside of 68 Wall Street New York under a buttonwood tree.
As Shanghai Securities News reported, the investments are part of SAFE’s strategy to diversify investment channels for the country’s massive foreign exchange reserves. Recent earnings filings show Buttonwood is among the top 10 shareholders of Bank of China, Bank of Communications, Shanghai Pudong Development Bank , Everbright Securities and Industrial and Commercial Bank of China.
In other words, the PBOC is now directly (as opposed to previously, when its interventions were indirect at best) propping up the stock market itself. The government also uses Central Huijin Investment Ltd, and China Securities Finance Corp, the state margin lender, to buy A shares. This makes China the second prominent central bank to be directly involved in stock purchases after the BOJ which has been buying ETFs and REITs for years, and the SNB of course, which as is well-known has an equity portfolio worth nearly $100 billion.
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