“Now, the PBoC will look to supercharge efforts to re-engineer a stock market bubble via leverage by pushing brokerages to issue ABS backed by margin loans. If brokerages simply offload the margin loan risk to investors and use the proceeds to fund still more margin lending which can also be turned into still more ABS, and so on, then the effect will be to pile leverage on top of leverage. What happens in the event the underlying stocks become completely illiquid (i.e. Beijing decides to suspend trading on three quarters of the market again)? The punchline: the senior tranche (which accounts for CNY475 million of the total CNY500 million deal) is rated AAA.”
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