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One of the great unknowns surrounding the outlook for both risk and the global economy, is why China has not been more successful in stimulating both its economy and its stock market. On the first one can point to the collapse in Chinese credit creation, which as we discussed two weeks ago, just posted its lowest growth on record...
...which some have attributed to local banks' unwillingness to inject new credit as a result of the surge in Chinese corporate defaults coupled with Beijing's lukewarm willingness to flood the system with another debt tsunami.
Stocks - Wealth - Effect - US - China
But what about local Chinese stocks? While not nearly as important for the local wealth effect as in the US - in China financial assets are at most 30% of household net worth compared to 70% in the US - the continued deterioration in the Shanghai Composite has been welcome by president Trump who frequently highlights the pain in Chinese risk assets as confirmation that he is winning the trade war with Beijing.
What is even more surprising, is that it now appears that this is precisely what Beijing wants.
Goldman - Fund - Stocks - Q3 - Bank
According to Goldman, which has analyzed fund flows into and out of Chinese stocks in Q3, the bank finds that overseas investors continued to raise exposure in A shares, perhaps fueled by speculation that Chinese stocks are now sharply undervalued. In fact, China's A-share ETFs received Rmb80bn inflows in the past 3 months, with both onshore and offshore A-share ETFs seeing net subscription. Also, 28 new passive equity funds (64 ytd) have been set up since July, raising Rmb60bn.
Adding to the confusion, in the third quarter, Goldman counted the largest buybacks in China A shares (Rmb15bn) and 2nd largest for HK (US$2.3bn) on record. At least in the US, this...
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