Money Matters | High-risk shadow banking fuelling a share market bubble
Lack of protection and information offered to investors in wealth management products on the mainland leaves many vulnerable to losses
Fancy cooking up a bubbling share market with daily trading of more than 900 billion yuan (HK$1.13 trillion)? Get hold of a pot overflowing with liquidity, and then add margin financing, wealth management products and notoriously aggressive trust companies. Toss in the fee-hungry banks and it is ready to be served.
The contribution of margin financing to the recent rally in Shanghai is beyond doubt, as the chart shows. It has soared from the September average of 360 billion yuan to 487 billion yuan last month and then 556.8 billion yuan on Wednesday. That is 2.7 per cent of the Shanghai market's capitalisation, double the average in the US market.
Add the Shenzhen number and margin finance swells to 856.4 billion yuan on the mainland. But, as with official figures on the mainland, it could well be higher.
A glance at a dozen of the so-called "preferred" wealth management products available on the website of a listed mainland bank tells you why. They are put under the A share-related category; that is a big attraction given the recent performance.
Click on the icon and you will find it described as a "prudent" product suitable for anyone with some investment experience. It is expected to generate about 6 per cent annual return. The minimum investment is 100,000 yuan.
Stock market plus "prudent" plus 6 per cent - that sounds like a good alternative to bank savings amid interest rate cuts.