What’s going on here?
Chinese stocks sprinted to their highest point in a decade – but, aware that slow and steady tends to win the race, regulators want to take a cue from the tortoise.
What does this mean?
Investors have pushed Chinese stocks up 20% since April, tempted by the country’s cheap borrowing costs and, frankly, turned off by the rest of the world’s offerings.
You might think China would be celebrating… but the country’s been burned before. About a decade ago, investors borrowed money and sent stocks to the ceiling – then swiftly back to the floor. So this time, regulators want safeguards. Namely, they may limit margin trading (borrowing money to buy stocks) and credit card loan purchases, as well as warn brokerages and social media platforms against whipping up hype.
Why should I care?
For markets: China’s shopping local.
China’s $12.5 trillion stock market is overwhelmingly powered by cash from local savers. In fact, retail investors now make up about 90% of daily trading in China – compared with closer to 25% stateside. That makes sense: Chinese savings accounts are paying less than 1%, and the property market’s still practically derelict. So households have little choice but to push their record $22 trillion cash piles into stocks.
This could go either way. If investors make more money, they could celebrate with luxury spending sprees – boosting struggling fashion houses owned by the likes of LVMH or Richemont. But if the market moves in the other direction, China’s everyday savers will be left scrimping.
Zooming out: Not-so-golden oldies.
Regulators will want to be careful not to scare off investors altogether. China’s pension system is straining to support an aging population, with its pool of younger workers shrinking. But if households can make more money on their investments, they might need less government support to fund their (and their family members’) golden years…
