China Stock Market “Slow Bull” and Family Deposit: Who can share the benefits when assets rise?

Is it possible that the Chinese building market is still going down, household consumption is weak, credit expansion is inadequate, and there is a more persistent and slow rise in stocks? The comment by Edward Chanselle, author of Reuters Breakingviews, on 9 October, suggested the prospects of “low cow”: the compression of real estate and shadow banking bubbles, the reduction of ineffective investments by enterprises, increased dividends and buy-backs may allow capital markets to re-evaluate in the face of slow economic growth.

There is no automatic transmission between rising stock prices and improved wealth for the population. The destruction of household balance sheets in the downwards of Chinese real estate has not yet ended, and local debt and employment pressures have constrained consumption. A sustained rise in equities under such economic conditions may mean more cash distribution by listed companies, and also a re-scheduling of asset prices by policies and funds; The beneficiaries are not necessarily ordinary families who are under pressure to pay or mortgage.

What does one, eleven times the market gain mean?

The MCIS index for China quoted by Breakingviews is expected to yield about 11 times the market rate over the next 12 months. Low valuations may mean moving space and may reflect investors ' demands for higher-risk premiums. If the profits of each enterprise are expected to decline, so-called “lower” does not necessarily stabilize the stock price. Long-term increases in stock prices require, at least, unsustainably down-sheltered business profits and a profit-making improvement beyond a few large companies.

It is also important to note in the comparison that the MSI China index does not equal the total number of companies listed in China ' s A share, and that there are differences in the composition of the industry and the investor structure between Hong Kong and the Chinese enterprises listed abroad. Using an index valuation to show that the whole Chinese stock market “entering the cattle market” would mask the pressure on SMEs to finance and exit.

Two or 25 trillion dollars in deposits is not equal to potential buyout

The original review mentioned that the bank deposits of Chinese family banks exceeded $25 trillion. Even if this estimate were to be established, it would not mean that residents would be willing to transfer fixed-term deposits to high-risk stocks. The old-age and medical reserves of middle- and old-age families, the concerns of young families about employment and the need for compensation for the shrinking of household wealth may leave savings in banks. Multiply the stock of deposits by any “market entry ratio” and obtain a maximum of hypothetical amounts of money, which cannot be assumed to be a net inflow of real funds.

If a family transfers a fixed-term deposit to a stock and the person who sells the stock immediately repossesssssss the transaction, the total amount of the bank system deposits does not change in a simple one-to-one relationship with the stock transaction. The long-term financing of the stock market should observe the net requisition of public funds, the allocation of insurance funds, the real activity of the securities account, rather than the macro-saving balance.

III. Red Cross and Repurchase are capital disciplines or are the compensation for weak growth

Increased cash dividends can reduce the inefficient expansion of enterprises on low-return projects and buy-backs can improve each share of profits. However, there are at least two explanations for the increase in the return on capital: first, the improvement in the cash flow of business operations; The second is the lack of attractive new investment projects, and the enterprise returns cash to the holder. Both can be identified only if they are analysed in conjunction with operating profits, R & D capital expenditure, liabilities and free cash flows.

The evaluation of the economic governance of the CCP cannot stop at “lowing the bubbles for the stock market”. The burden of de-leveraging property has been shared by home buyers, local finance and the job market. The real cost of the policy should be measured by who bears the loss, who receives the asset valuation recovery and who continues to take financial risk.

Who can share the proceeds after the asset price rise

If profits in manufacturing are up and business governance is improved, residents can share part of the growth through funds and retirement funds; If the index rises only in a few weight companies and youth employment and real wages do not improve, so-called cattle markets can become a new channel for the division of wealth between asset holders and workers in general. More serious is the re-inducing of real estate and local debt to business profits, which makes low valuation a long-term value trap. A government that has a stock market boom as a policy achievement must answer both how the income of the population, social security and investor rights have improved.

The fact that Chinese residents hold large bank deposits is not necessarily a reason for their continued willingness to enter the stock market, not because of a lack of investment advocacy, but because of complex judgements about income, real estate, business profits and policy predictability. Beijing can be expected to drive a gradual increase through policy, but it cannot build long-term capital market confidence through administrative mobilization alone. The real support for slow-moving cattle must be publicly listed corporate governance, investor rights and transparency systems; Otherwise, the more households transfer their savings to stocks, the more likely they will put their original consumer safety cushions in the swing of policy.