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As Trade War Prolongs, China Pedals for Quantitative Easing

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Among other measures to release more liquidity, the People’s Bank of China (PBOC) disclosed the formation of a bond swap facility in a move to deal with the combination of a broad-based slowdown in China’s economy and contentious trade war with the United States spurred by U.S. President Trump’s America First trade policy.

The bond swap will allow holders to exchange commercial bank perpetual debt for central bank bills to be utilized for borrowing collateral – a form of Chinese quantitative easing. Perpetual bonds are notes without a maturity date. The PBOC is keen on providing more credit to the real economy, but banks may be hesitant to lend more capital.

In addition, the PBOC revealed they would release 250 billion RMB (US$ 37 billion) in additional cash to banks. Earlier in January, the PBOC lowered the required reserve ratio by a combined 100 basis points (two 50 BP cuts – one January 15th, the other January 25th) for its banks, bringing in additionally 1.5 trillion RMB. The PBOC also allowed lenders to lower the reserve rate even further if they lent a certain amount of bank loans to small and micro-sized businesses. There were four required reserve ratio cuts in China in 2018. Furthermore in the same month, PBOC injected another 560 billion RMB into the banking system through reverse repurchase agreements, which buy short-term bonds from a number of banks, so that banks can lend more.

Bank of China Issues First Ever Perpetual Bonds

In late January 2019, Beijing-based Bank of China Limited issued its first-ever perpetual bonds by a Chinese bank. Bank of China sold 40 billion RMB worth of perpetual bonds at a yield of 4.5%. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

China’s Central Bank Creates Macro-Prudential Management Bureau

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The People’s Bank of China (PBOC) created a new department to oversee and attempt to eliminate financial risks to the system. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Like its U.S. Peers, Legg Mason Seeks to Trim Costs

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Legg Mason Inc., a Baltimore-based asset manager, has announced a reduction in workforce as is prepares to streamline operations and save money. Legg Mason’s leadership commented that assets under management fell 5 % year-on-year. Legg Mason currently manages US$ 727.2 billion (as of December 31, 2018), which is down from the previous US$ 767.2 billion. CEO Joseph A. Sullivan noted that a global operating platform will centralize fund administration, IT, and other departments that work with affiliates. Sullivan did not discuss the number of layoffs expected, or specify which areas would be impacted. Legg Mason disclosed they planned to close a quarter of its exchange-traded funds in March 2019. These three ETFs include a U.S. strategy, emerging markets, and a developed markets strategy outside the U.S. However, these funds run around US$ 28 million in assets under management.

[ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Monetary Authority of Singapore Establishes Corporate Governance Advisory Committee

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On February 12, 2019, the Monetary Authority of Singapore (MAS) revealed the creation of a Corporate Governance Advisory Committee (CGAC). CGAC was formed to advocate for good corporate governance practices among listed companies in Singapore. Bobby Chin, Director of Singapore Telecommunications Limited, will be the Chair of CGAC. According to a MAS press release, “CGAC will identify current and potential risks to the quality of corporate governance in Singapore.”

MAS formed the Corporate Governance Council (Council) in February 2017. The Council was dissolved after it pushed out a publication of its final recommendations on August 6, 2018.

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