Friday, June 3, 2016

Should China emulate America? Or the other way around?

For your weekend contemplation: This post isn't about how the American and Chinese economies may converge, but about the potential development path of capital markets and regulatory regimes. CNBC recently reported that Charles Schwab and the Shanghai Advanced Institute of Finance conducted a survey of Chinese stock investors and found out the reason the Chinese all appeared to be punters and gamblers. First and foremost, they didn't start that way and only a small minority were in it for a quick profit:
Having surveyed 450 investors, only 13 percent invest for short-term purposes, such as turning a quick profit or generating enough cash to make a major purchase, while 87 percent invest as a means to improve their standard of living, retire or their children's education, the study found.
But the Chinese market is not very mature and the investor base isn't very sophisticated:
The lack of a mature bond market, long-term products on the market and professional financial advisors were major challenges, the authors explained.

"While the incomes and expectations of China's emerging affluent have risen, China's financial services sector has not kept pace...Unlike upper-middle class investors abroad, most Chinese investors chart their financial futures without assistance from financial service professionals," the authors said.

As a result, Chinese often don't understand the content of their investments and the risks they carry, the study noted, pointing to WMPs as an example. Detailed information isn't always provided to customers and this lack of transparency is intentional since most WMPs are concentrated in China's increasingly troubled industrial sector, the study said.
The combination of the lack of a professional institutional investor base (think Singapore's sovereign wealth fund) and the lack of hard information about the markets, individual investors adopt behavior that looks like gambling.

The full post can be found at our new site here.

Website notice
If you found the above post to be of interest, come over to the new site and check out our track record. We have something for traders and investors alike:

No comments: