A week late but here’s some more on the relationship between China’s stock market and economy from the AFR:
The market, constituting mainly retail investors, had tied up around 11 per cent of their household wealth into the share market, relatively small compared with 30 per cent in the US.
Given that the equity boom-bust has happened in such a short time period, it is likely that the majority of the consumers have not yet dramatically changed their propensity to consume or spending on discretionary goods.
…Barclays found 10 per cent stock in market returns would boost annual GDP growth by 0.2 per cent. Conversely, a further 20 per cent fall in the market from here would result in a 10 per cent annual loss, with a fall of 0.2 percentage points.
That accords pretty much with the MB view, though as written Monday the rebound in stocks is completely artificial given it is at the point of a gun. The SSE remains massively overvalued at current levels and any shift away from official supports is unlikely to end well with a daisy chain of impaired collateral fallout.
The overall impact is likely to hasten the slowing of growth not kill it.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
