China raises alarm over global market bubble

China raises alarm over global market bubble

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Guo Shuqing, the Communist Party boss at the People’s Bank of China, told reporters in Beijing on Tuesday that confidence in Chinese markets could be affected by volatility around the world.

“We are really afraid that the bubble for foreign financial assets will one day burst,” said Guo, who is also chairman of China’s Banking and Insurance Regulation Commission.

Guo’s warning follows concerns expressed elsewhere that bubbly behavior spreads through financial markets. Wall Street banks are asking customers questions about whether the runaway boom in equities will be followed by an accident that looked like the dot-com bubble burst 21 years ago.

Guo acknowledges such fears, adding that the marches in the US and European markets do not reflect the underlying economic challenges facing both regions as they seek to recover from the brutal pandemic recession.

‘Such [a] bubble storm could cause a significant foreign capital inflow to China, ‘Mizuho Bank analysts wrote in a research note, adding that the regulator said it would study’ effective measures’ to encourage the free flow of capital while shocking avoid the financial markets. A large amount of money to China could destabilize the world’s second largest economy by rapidly inflating its currency, assets and prices.

The Chinese bank leader also said he was concerned about whether the Chinese real estate sector was also at risk of volatility – an issue that analysts said implied the country might be ready to sharpen its wallet. President Xi Jinping said at an economic conference late last year that the country should stabilize the real estate market by 2021, and Beijing has already taken some measures to do so. In December, regulators issued rules aimed at restricting loans to the real estate sector.

Local governments in China, meanwhile, measures have intensified since the beginning of this year until cool the market, among other things by restricting purchases and entering developers.

Markets shaken

Guo’s remarks shook the market in the region. The Shanghai Composite (SHCOM) and Hong Kong’s Hang Bed Index (HSI) both are heading upwards ahead of Guo’s speech, building on Wall Street’s rally on Monday. But both indices expired shortly thereafter. The Shanghai benchmark fell by 1.2%, while the Hang Seng fell by 1.3%.
Other indices in the region also fell: Australia’s S & P / ASX 200 fell 0.4%, while Japan’s Nikkei 225 (N225) it decreased 0.9%. South Korea’s Kospi (KOSPI) was the outlier and rose 1% after markets closed for a holiday there on Monday.

“This indicates how sensitive the markets are to the removal of policy accommodation,” Stephen Innes, Axi’s world market strategist, wrote in a Tuesday letter. “It also emphasizes that central banks will run at different speeds to pull away from last year’s crisis.”

Guo’s comments also reflect Beijing’s concerns about the risk of rising debt to the economy. According to central bank data, real estate loans accounted for almost 30% of total loans issued in yuan by the end of 2020.

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And some in China have already suggested that it is time for the country to reduce fiscal and monetary support – including former finance minister Lou Jinwei, who said in December that a ‘gradual exit’ from loose policy would help to stabilize China’s debt ratio and eventually reduce it. .

China spent hundreds of billions of dollars last year in an effort to bolster the country’s economy following the pandemic. Its efforts to stimulate activity – including through major infrastructure projects and by offering cash handouts to stimulate spending among citizens – have apparently borne fruit, as the economy grew by 2.3% last year.
Now the country wants to keep that momentum going while measuring how much financial support will really be needed. It also balances the recovery with a plan to ensure that about 40% of the population gets Covid-19 vaccines by June – a number of more than half a million people.

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