China’s households may plow as much as 600 billion yuan ($86.8 billion) of excess savings into the nation’s stock market, driving the next leg of the rally, according to UBS Group AG.
(Bloomberg) — China’s households may plow as much as 600 billion yuan ($86.8 billion) of excess savings into the nation’s stock market, driving the next leg of the rally, according to UBS Group AG.
The potential upside is “significant” given what happened in 2014-2015, when 2 trillion yuan of retail inflows helped stage a trough-to-peak surge of about 150% in onshore Chinese shares, strategists including James Wang wrote in a note Wednesday.
Chinese households have around 8 trillion to 10 trillion yuan in excess available deposits due to limited spending during the pandemic, and the precedent in other countries suggests about 6% end up in equities investment, they said.
“With the A-share market showing some positive momentum in recent quarters, the conditions are ripe for retail inflows to pick-up in the next 3-6 months,” the strategists wrote.
China’s excess savings have been touted by some analysts as a potential driver of stock-market gains, but a more cautious view points out that the figures may have been overstated. Consumers may also keep purse strings tight until the economic recovery translates into visible income gains.
The actual timing of inflows would hinge on a slowdown in deposit growth and improvement in consumer confidence, the strategists wrote.
The latest data show China’s economy is rebounding fast after Covid restrictions were dropped late last year. Any growth-support measures released during the National People’s Congress starting this weekend may lift market sentiment and help revive a rally that’s fizzled out in recent weeks.
Retail flows typically prefer cyclicals including software, financials and tech shares over food and beverage, according to UBS. The onshore market is set to benefit the most from additional retail inflows, while Hong Kong’s market could also see increased investment via the southbound trading links, they added.
China has more than 200 million mom-and-pop investors, who are known for driving extreme market volatility, which had led to the epic crash in 2015. But their influence may be fading, as authorities step up efforts to institutionalize the market and call for more participation by mutual funds and private pensions.
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