China's $29 Trillion Ball of Money Rolls to a Long-Ignored Haven
Comment of the Day

September 06 2018

Commentary by Eoin Treacy

China's $29 Trillion Ball of Money Rolls to a Long-Ignored Haven

This article from Bloomberg news may be of interest. Here is a section:

Bank deposits, shunned for years by the nation’s return-hungry masses, are suddenly looking attractive again as higher-yielding investments prove riskier than many had anticipated. China’s household deposits rose in July at the fastest annual rate in a year -- an influx that analysts say may accelerate after the nation’s stock market sank at the quickest pace worldwide, hundreds of peer-to-peer lending platforms shuttered and companies defaulted on their debt at an unprecedented rate.

“People around me are all asking the same question: Where is the safe place to put our hard-earned savings?’’ said Anna Teng, a 30-year-old marketing manager in Shanghai who’s been shifting her assets into deposits after losing about 20 percent on her equity investments since May and falling victim to a fraudulent P2P lending platform.

Eoin Treacy's view

Chinese banks, particularly the mid-size and regional segment, need deposits so retail investors pulling out of high yield or high leverage instruments is good news on that front. However, the banks will also miss out on the fees they were collecting from those products and will therefore need to figure how to boost revenues somewhere else. Just how they are going to be able to do that when risk appetite is waning is rather a challenge.

The FTSE A600 Banks Index has steadied since early July but its rebound has been modest. It needs to continue to hold the progression of higher reaction lows if support building is to be given the benefit of the doubt.   

Meanwhile the Shanghai A-Shares Index is back testing its lows and will need to rally smartly to demonstrate continued support in the 2800-point area.

Among China’s household name mega-caps only Alibaba has not pulled back in a dynamic manner. However, that may now be changing. It broke towards to a new reaction low today and a clear upward dynamic will be required to check Type-2 top formation completion characteristics.

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