Diverting household savings from bank deposits to the stock market is an interesting idea, and certainly bullish for Chinese stocks in the short term, but Beijing should understand the impact on Chinese volatility. To the extent that the...
scmp.com/business/compa… via @scmpnews
scmp.com/business/compa… via @scmpnews
@SCMPNews ...CBIRC is successful, especially in diverting the savings of ordinary households (i.e. not the rich), it would increase balance sheet inversion and, with it, the underlying volatility and procyclicality of the economy.
This is because when the Chinese economy is doing well...
This is because when the Chinese economy is doing well...
@SCMPNews ...the resulting increase in stock prices would cause Chinese households, feeling richer, to increase their consumption. This “wealth effect” would further boost demand, causing Chinese growth to pick up even more. The problem is that virtuous cycles are simply the obverse of...
@SCMPNews ...vicious cycles. Bad news on the economic front would cause stocks to drop, and the wealth effect would kick in on the opposite side: Chinese households would cut back consumption at the worst possible time.
It probably does make sense in the long run to have households...
It probably does make sense in the long run to have households...
@SCMPNews ...own stocks, but the timing may be bad. Given extremely high debt levels, and the tremendous downward pressure resolving this debt places on future growth, this is probably not a good time to increase balance sheet inversion and make Chinese growth even more procyclical.
