Share slump won’t derail real economy
Print Edition
THE volatility in China’s stock market is unlikely to destabilize the real economy or deter foreign investors’ interest in its capital market, experts said yesterday.
The slump that has so far sliced more than 30 percent off the benchmark Shanghai Composite Index since its mid-June high will have only a limited impact on China’s real economy as equity investments represent only a small proportion of household wealth allocation, Wang Tao, an economist with UBS, said in a report.
More than half — 54 percent — of people’s wealth is in savings, with only about 20 percent in equities, she said.
Any loss of gains wouldn’t significantly dampen household consumption, she said.
Nevertheless, stock market inactivity could result in the financial sector’s contribution to economic growth falling by about 0.5 percent in the second half, UBS said.
The sector contributed about 0.7 percent last year and 1.3 percent in the first quarter.
“We maintain our 6.8 percent GDP growth forecast for this year,” Wang said.
Also yesterday, the City of London’s policy head said in Shanghai that the “corrections” in the domestic market will not hurt the attractiveness of the Chinese capital market as its fundamental positive growth trend is unchanged.
“Volatility as such is something all governments would ideally avoid but it’s inevitable when a market rises 150 percent in a short period,” said Mark Boleat, chairman of the authority’s Policy and Resources Committee.
“The corrections offer valuable lessons for investors and regulators, and that could help the market mature,” he said.
China’s opening-up policies remain on top of the watchlist for foreign investors and financial authorities, he said.
“Foreign banks, insurers, and securities brokerages are keen on China, and institutional investors in London remain active in seeking entrance to the China capital market,” Boleat said.
Despite the reassurances, both City of London Corp and UBS have said stock market turbulence could slow the pace of economic reforms in China.
“The government may take a more cautious approach regarding capital account opening, given that too rapid an opening may amplify domestic fluctuations,” UBS said.
Gao Ting, head of Asia-Pacific Macroeconomics at UBS Wealth Management, said the market turmoil is unlikely to pose a threat to financial systems as only a small proportion of financial assets are exposed.
The value of assets of securities firms and mutual funds with exposure to the stock market accounts for only about 5 percent of all the assets in the financial system. Moreover, banks, which dominate China’s financial system, have only 1 to 2 percent of their assets exposed to the stock market.
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