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Volatile stock market unlikely to destabilize the real economy
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The high volatility in China’s stock market is unlikely to destabilize the real economy but may set back reform plans, economists with UBS Securities said.
The stock market crash that has sent the benchmark Shanghai Composite Index down more than 30 percent from its mid-June high would have limited impact on China’s real economy, considering the small proportion of equity investment in household wealth allocation, Wang Tao, economist with UBS said in a report today.
Despite of the sharp rally in stock market in the past few months, equities still account for only about 20 percent in overall household financial wealth, compared with 54 percent in deposits. Thus, the loss of gains from equities would not significantly dampen household consumption, Wang said.
The impact of an inactive stock market may cut the financial sector’s contribution to gross domestic product growth by 0.5 percent in the second half of the year from the first half, UBS estimated.
The financial sector contributed about 0.7 percent to GDP growth in 2014 and 1.3 percent in the first-quarter GDP growth, data showed.
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