Practical analysis for investment professionals
27 June 2013

Poll: Are the Sell-Off in Chinese Stocks and the Efforts to Restrain Shadow Lending Signs of Troubles Ahead?

Posted In: Economics

In a poll conducted earlier this week in the CFA Institute Financial NewsBrief, we asked readers whether the recent sell-off in Chinese stocks and moves by the People’s Bank of China to restrain shadow lending are signs of greater troubles ahead.


Are the sharp sell-off in Chinese stocks and the efforts to restrain shadow lending by the People’s Bank of China signs of greater troubles ahead for the Chinese economy?
Poll: Are the sharp sell-off in Chinese stocks and the efforts to restrain shadow lending by the People's Bank of China signs of greater troubles ahead for the Chinese economy?


The People’s Bank of China recently embarked on a strategy to limit so-called shadow lending throughout the Chinese economy. The PBOC has specifically asked commercial lenders to focus on lending into the “real” economy and to avoid lending for “financial speculation.” Consequently, commercial lending rates have risen dramatically, and the formal banking system has endured a severe liquidity crunch, which required massive liquidity injections from the PBOC.

This event joins other signs of the weakening of the Chinese economy and has sent shares of Chinese stocks into bear market territory. It appears that investors have not only noticed but also expect further deterioration of the Chinese economy. Of the 897 respondents to our poll, about 60% expect further deterioration of the Chinese economy and/or ongoing weakness in Chinese share prices. Other respondents indicated that they think the direction of China is unclear at this point (25%), which leaves only 15% of respondents who are bullish on China.


Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

About the Author(s)
Ron Rimkus, CFA

Ron Rimkus, CFA, is a content director at CFA Institute, where he focuses on economics and alternative investments. Previously, he served as CEO at the online technology company he founded, Chaos Management, Inc. Prior to founding Chaos Management, Rimkus served as director of large-cap equity products for BB&T Asset Management, where he led a team of research analysts, regional portfolio managers, client service specialists, and marketing staff. He also served as a senior vice president and lead portfolio manager of large-cap equity products at Mesirow Financial. Rimkus earned a bachelor of arts holds a BA in economics from Brown University and an MBA from the UCLA Anderson School of Management. Topical Expertise: Alternative Investments · Economics

1 thought on “Poll: Are the Sell-Off in Chinese Stocks and the Efforts to Restrain Shadow Lending Signs of Troubles Ahead?”

  1. Stephen Hinch says:

    I am sorry I missed this poll, but what it lacked was the ability to comment the sell of. What is missed is the fact that the markets in China had already been weak, the Shanghai Composite has been down since May 2011 and had already failed a a weak attempt to reverse this trend.
    The Hang Seng had already peaked in Jan this year and was selling off and still has some downside to go. The market reaction this time much the same across Asia was the increase in capital outflow from driven by foreign fund managers as they rebalanced from risk/on to risk/off due to the Feds comments. In Thailand for example net selling increased from 50% of foreign volume to 59% and as they make up almost 40% of daily volume there was a considerable correction. This same reaction could be seen across most emerging markets where foreign capital has been flowing, including China. I believe after working in the is region for a very long time that China will still outpace most economies in GDP growth and the the PBOC simply used the timing of the Fed market turmoil to drive home the changes needed in their banking system.
    comment

Leave a Reply

Your email address will not be published. Required fields are marked *



By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.

Close