China's stock market boom: what's after the bubble?

Suddenly China's stock market has boomed. In November 2014 the Shanghai Composite Index was around 2700, and today the market has hit 4574.65, a record high in six years. With monetary policies easing and the official media backing, it is no wonder why the stock market is heating up. 

It is noticeable that two groups of people, aside from institutional investors, have played a significant role amid this bullish wave. The first group is senior-aged Chinese women, or dama, who in Chinese tradition are treasurers of the family savings. They have abundant experiences dealing with family portfolios, and sometimes the performance of damas even outstrip that of a professional investment banker. The other group is the gen-90 young people (including me), who invested their generous amount of pocket money into the stock. Not only did the market accumulated mass leverage capital, it also absorbed a considerable proportion of household savings, both of which have contributed to inflated asset prices that have nearly doubled in less than half a year.

The bubble theory emerged again for China's stock market rush, although the bubble can only be observed after it collapses. It is reasonable to deem China's stock prices overvalued at present, taken China's not so satisfying first season economic data into consideration. So what will happen after the bubble burst is of greater concern. Of course, there will be people bearing the loss. But more importantly, what would the mass capital turn to invest after they escaped from the stock? 

On March 30th, tax and rate cut for real estate purchase were finally announced in order to support China's housing market. With high existing inventory and newly added ones, this policy hasn't really taken its effect until now. However, apartment inventories are now declining at fast rate, and it is very possible that between June and September housing price in China's major cities will rise sharply. Traditionally China's individual investors favor housing investment more than stocks and bonds because of its immovable property nature. However, after the 2014 adjustment, real estate investments in China's minor cities are no longer safe. It is therefore a trend-to-be that the mass liquid capital out of the stock market will move into the estate market of China's mega cities in the second half of 2015, and a similar boom in housing price would be witnessed after the stock market bull makes its curtain call.

This entry was posted on Tuesday, 28 April 2015 and is filed under ,,,,. You can follow any responses to this entry through the RSS 2.0. You can leave a response.

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