Monday, June 29, 2009

China Business News: $170B of Bank Loans Funneled into Stock Market

I had read a similar piece to today's story in Bloomberg around March and had emailed it around to a few folks, but did not post it on the blog. This is the first time I've seen an actual number attached to it and its staggering when you account for how big the Chinese economy, stimulus, and stock market is. 1 of every 5 dollars of stimulus is being pushed into the stock market. And let me be clear, I don't believe this is the only country where a mad rush of easy money thrown in all directions is "somehow" finding itself funneled into the stock market. Ahem. But when you have endless money trees and lumberjacks a plenty, feel free to bless stock market participants with largess born of future generations. It's all good.

At least in China's case they actually have the money in house instead of needing to borrow it for "mirage like" gains. Can't say that for another country where this is happening...

p.s. which country is a more open and relatively transparent system of disclosure? ....with government economists being forthright with what is happening with actual statistics and data? And which is not? Sorry, I sometimes get confused.

"Prosperity". It's everywhere. (just don't look under the hood at the nexus of said green shoots)
  • Chinese new bank loans worth about an estimated 1.16 trillion yuan ($170 billion) were invested in the stock market in the first five months of this year, China Business News reported, citing a government economist.
  • That’s 20 percent of the 5.8 trillion yuan loans banks extended in the period, the Shanghai-based newspaper said, citing Wei Jianing, a deputy director at the macro-economics department of the Development and Research Center under China’s State Council.
  • Record lending after the central bank scrapped loan quotas in November last year is helping the economy to revive after the weakest growth in almost a decade.
  • About 2.4 trillion yuan worth of bank loans were invested in projects in that quarter, Cheng said, leaving a further 2.18 trillion yuan in new loans of the total. “Where did it go? It’s undeniable that a portion of the lending may have flowed into stock and real estate markets and triggered the rebound in these two markets,” the former official said at a financial forum in Ningbo city in eastern China.
  • A further 30 percent of the loans may have been used for discounted bill financing, or short-term credits used to fund working capital needs, according to the report. These funds may help form a financial bubble, the newspaper cited Wei as saying, adding this is the economist’s personal view. (the Chinese are learning from the masters of bubbles - Alan Greenspan must be proud his groundbreaking work is being copied the world over)
We predicted just this thing early in the year... in fact as far back as February before their "new bull market" began.
  1. [May 27, 2009: How is China Spending their Stimulus Money; and How many Loans will go Bad?]
  2. [Feb 16 2009: Is China Pulling an Alan Greenspan?]

This also says a lot of about the nature of the commodity "boom" and what is really the cause.

That said, it is what it is - and if governments are insistent on creating dislocations in price, there is really no fighting it. As Jim Rogers says, this is one of the few times he is not hedging (shorting) anything due to the massive flood of money from the heavens.

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