International | Apr 17 2007
By Chris Shaw
When Chinese shares slumped in late February and took global markets down in sympathy it briefly looked as though the current bull market in equities was over, but the evidence suggests in China at least nothing could be further from the truth.
GaveKal Research points out Chinese equities have been on a tear in recent weeks, as in the past month the Shanghai Index is up almost 11% and the Shenzhen market 14.9%, the two having put on 32% and 72% respectively in the year to date.
In the group’s view the strong performance is not surprising, nor is the fact retail investors have been jumping on board at increasing speed of late. The group points to figures suggesting 4.8 million equity accounts were opened in China in the first quarter of the year, including 188,000 retail accounts on a single day earlier this month as evidence of the growing interest in the markets.
The simple fact is there are few options available for Chinese investors as GaveKal points out short-term interest rates in China are actually negative, meaning those who choose to let their savings accumulate in the bank are actually losing money in the process.
This means savers have only three options from which to choose for investing in the hopes of generating a positive return – the local real estate market, the local equity markets or gold, as they simply don’t have the option of investing money overseas.
Banks have been helpful in this regard, as despite increases in reserve requirements there has been no lack of money available for investment loans, so helping fuel the equity market gains.
But there are potential consequences, GaveKal suggesting there are political risks in any move from the Chinese government to cool down what is clearly a hot market, as if losses are sustained the impact will be broadly felt throughout the population.
GaveKal sees the logical step as opening up opportunities for Chinese citizens to invest overseas, as this would achieve the dual outcome of reducing pressure on local markets while also diversifying the national savings base.
Such a move would also be a good one for the rest of Asia in the group’s view, as it would potentially expose other markets in the region to the investment funds of Chinese savers.
