May 31, 2007
The Dearth of Investable Assets in China
Selected excerpts from the World Bank’s recently released China Quarterly Update:
Although there appears to be some loan financing of share transactions taking place, the bulk of funds entering the market are being channeled out of bank deposits.
The impact [of a stock market crash] on the real economy via reduced consumption and investment is likely to remain limited. Because of the still modest exposure to equities, wealth and balance sheet effects that could drive domestic demand downwards are likely to be limited.
The exposure of the banking system to the stock market, directly or indirectly, seems limited: although there are no good data on this, CASS estimated that the exposure may add up to RMB 300 billion, which is a modest 1 percent of the total deposit base and 5.5 percent of stock market capitalization of tradable shares.
The authorities need to continue to act decisively and transparently against illegal market activity, including insider trading, price manipulation, and provision of false information.
But if they cleaned up “insider trading, price manipulation, and provision of false information,” they would effectively shut down the markets here. ;-)
(There’s also a section at the end of the report on the “Underpricing of IPOs” that’s worth reading.)
May 31st, 2007 at 4:07 pm
The underpricing of IPOs is mostly about developing and maintaining guanxi. In a way, it’s a look at the value put on guanxi by the issuers/underwriters.
May 31st, 2007 at 5:32 pm
Brian: It reminds me of the gains made by some relative of the sales agent who sold us our apartment. You think you’re dealing with the developer directly, but all the “prime” apartments are already “owned” by someone connected, and they reap the risk-free gains. (Only risk-free in a wildly rising property market of course.)