Saturday, December 21, 2013
Stock Market: China - The Second Chance?
Maybe they get it in China. Last week the Shanghai Composite Index, a gauge for Chinese stocks, lost 5% and is down 8% year-to-date. Chinese stocks dropped for a ninth day yesterday, the longest losing streak in 19 years, as targeted fund injections by the central bank failed to alleviate the worst cash crunch since June, wrote Bloomberg (bloomberg).
It seems that China`s economy is badgered by high interbank lending rates, the interest rates for money banks lend to each other. This is poking fears that companies will get less bank credits and have to pay higher interest rates for them. This credit crunch could endanger China´s economic growth.
The situation in China reminds of U.S. and Europe in spring 2009. Then there were a lot of headlines about the "credit crunch" (frbsf.org). Interbank rates were high because banks didn`t trust each other - a response to the crisis in 2008/09. Today we know that the credit crunch vaporized in the following months (albeit slowly) thanks to a healing economy and the rally had started.
Maybe the same will happen in China. The stock market there is trapped in a pessimism bubble and doesn`t reflect the economic strength (driveby). The Asian economy is still growing with a rate of around 7.5% annually. Accelerating exports growth (thanks to the global upswing) and stronger retail sales should fuel further advances.
It seems that the high interbank rates are just a reflection of the bad sentiment and could disappear when the continuation of the economic growth restores confidence. Maybe the cash crunch now is a big change for investors and 2014 could see a China rally comparable the rally we saw in 2009 on the U.S. stock market.