Financial markets in China

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Monday, July 13, 2015

China stocks extend winning streak, FT:

Some analysts had raised doubts about the sustainability of the bounce, with more than 1,400 companies — about half the market — suspended for much of last week. On Monday about 400 companies resumed trading, with the percentage frozen dropping to 36 per cent.

How many households are exposed to losses?

In our latest China Watch post, Sean Miner and I lay out some statistics:

At the end of 2014, Chinese households held on average 10 percent of their assets in stocks, and out of 350 million households, a maximum of 30 million to 35 million have exposure to the stock market.

The FT reported on monday that "[o]f all individual investors in the stock market, 21 per cent held less than Rmb10,000 ($1,600) worth of stock at the end of June, while 69 per cent held less than Rmb100,000."

Also worth noting:

While retail investors do make up a large share of overall market participants, their share of overall market value is probably 5 per cent or less, while the vast majority of Chinese households own no stock at all.

According to China Household Finance Survey led by Gan Li, 6% of Chinese households hold stocks. A Morgan Stanely note from July 10 suggested that 8.8% of households participate in the market for equities.

Larry Elliott writes:

Ten days of falls on the Shanghai stock exchange resulted in losses that exceeded the GDP of Mexico. And 12 million Chinese citizens who opened share-trading accounts in May were nursing potentially ruinous losses. Margin trading – speculating on the stock exchange with borrowed money – increased five-fold in a year to 2.3tn yuan (£230bn).

Less protection in the future?

Michael Pettis, WSJ:

The next two to three years are vitally important. In the best case scenario, Beijing will continue to rebalance its economy and to restructure the country’s balance sheet and financial system. Yet this cannot happen except under much slower growth. Because the debt will burden will continue to rise for at least another four or five years, Beijing will be tested more than ever. To defend itself from crisis, it must become increasingly stingy with its protection.

Giles Wilkes, FT:

Credible economic stewardship depends less on what is done than on the imputed reasons for doing it. Setting policy according to the whims of the stock market is like steering an oil tanker after a school of dolphins.

It is lucky that easing the money supply, pursued as a way of propping up share prices, happens to be suitable as well for a broader economy at risk of deflation. But these two aims will often diverge — after all, the market boom gained steam just as the Chinese economy slowed. The precedent set this month forces the authorities to choose between stabilising the stock market and steering the economy. They should not have to. Let the market mesmerise its gamblers, and Beijing’s grandmothers wager what they will, with neither help nor admonition from Mr Xi.

Beijing scrambles to avert political crisis (Nikkei):

A big concern in Beijing is that disgruntled individual investors will start pointing fingers at the government and the Chinese Communist Party. Rumors that the government is considering sacking the head of the securities watchdog suggest the leadership trying to divert attention away from itself.

On Friday, the day after the stock market rebounded sharply after a weekslong swoon, Chinese newspapers declared in front-page headlines that the harrowing slide was over. "The panic has become a thing of the past," declared one. "The future of China's capital markets is bright," asserted another.

  • Five Charts Putting China's Stock Market Mayhem in Perspective, Bloomberg
  • Greek, Chinese and Puerto Rican Crises All Fall Short of Going Global, WSJ
  • The Equity Market Rally and Financial Sector’s Share of GDP Growth, PIIE

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