February 7-13th marked the official celebration of the Chinese Lunar New Year. Just like during the holidays in America, consumers reach deep in their pockets for the sake of tradition. The Chinese New Year requires much of the Asia-Pac region, from mainland China to Hong Kong, to gift red envelopes filled with new notes. Savvy investors will however have their capital working for them in the stock market. To cover these short term costs, investors might consider selling their stocks, but there is a better way.
Squadron Lending provides a great alternative to selling shares, stock loans. Cash for stock transactions provide investors the ability to obtain a capital injection, thus being able to cover short term costs. Cash demand for the Chinese New Year season is expected to rise so much that The People’s Bank of China was recently rumored to inject hundreds of billions of yuan into the system. Bloomberg reported that a leaked government document said, “the PBOC plans to inject about 1.6 trillion yuan before the coming holiday to meet seasonal demand, and arrange[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][d] 600 billion yuan to 800 billion yuan of medium-term liquidity support.” The cash influx from the PBOC will prevent a spike in interest rates, but might facilitate further cash outflow from the country. Dwindling cash reserves is a risk to China at the moment, after billions was spent on stabilizing the stock market.
This news underscores the importance of having an alternative source of cash. Seasonally, the price of cash, repo rates, spikes due to this influx in demand. Historically, 7-day repo rate fixings have shot up to over 6% for New Years according to Bloomberg. Depending on the quality of stock pledged as collateral and the loan’s duration, stock loans could be a cheaper source of cash than what banks could otherwise provide.