Is China Repeating Korea's Mistakes? - Bloomberg View: "Beijing has been encouraging everyone in the country, from the richest princelings to the poorest of peasants, to buy stocks. And China's markets have been booming as a result: Over the past 12 months, the Shanghai exchange is up 141 percent, and the Shenzhen exchange is up 188 percent. Margin trading, which has fueled these rallies, seems to have jumped another 45 percent in May, to a total of $484 billion.
Chinese companies have been the greatest beneficiaries of these stock rallies. The higher equities are driven up, the easier it is for companies and banks to issue shares and improve their debt situation. Companies have raised $42 billion from share sales in 2015, on pace for the busiest year ever.
But who will suffer when stocks inevitably swoon? Beijing is making a risky bet, by assuming Chinese savers will be capable of dealing with the burden of a stock market downturn. This strategy is morally questionable -- it's another instance of Chinese savers being set up to take the fall for government policy, as they were during the hyperinflation of the 1940s, and in modern times, when they faced strict limits on deposit rates.
Moreover, it would be far easier for Beijing to bail out a handful banks and dispose of bad loans that are concentrated at a few dozen companies, than deal with debts that are distributed to households across the country. Increasingly, there are signs that a reckoning will soon be in the offing. On May 28 alone, Shanghai lost $550 billion in market value -- a reminder stocks can't surge 10 percent a week forever, not even in China. Why would the government want to risk the possibility hundreds of millions of aggrieved day traders heading onto the streets with protest banners?"
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Chinese companies have been the greatest beneficiaries of these stock rallies. The higher equities are driven up, the easier it is for companies and banks to issue shares and improve their debt situation. Companies have raised $42 billion from share sales in 2015, on pace for the busiest year ever.
But who will suffer when stocks inevitably swoon? Beijing is making a risky bet, by assuming Chinese savers will be capable of dealing with the burden of a stock market downturn. This strategy is morally questionable -- it's another instance of Chinese savers being set up to take the fall for government policy, as they were during the hyperinflation of the 1940s, and in modern times, when they faced strict limits on deposit rates.
Moreover, it would be far easier for Beijing to bail out a handful banks and dispose of bad loans that are concentrated at a few dozen companies, than deal with debts that are distributed to households across the country. Increasingly, there are signs that a reckoning will soon be in the offing. On May 28 alone, Shanghai lost $550 billion in market value -- a reminder stocks can't surge 10 percent a week forever, not even in China. Why would the government want to risk the possibility hundreds of millions of aggrieved day traders heading onto the streets with protest banners?"
'via Blog this'
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