Mainland stocks in free fall despite a series of government policy interventions has many investors figuring it to be a sign of an impending financing catastrophe for the corporate sector. Not according to data crunched by analysts at HSBC. Stock market wealth is less than 15 per cent of household assets on the mainland and equity issuance is less than 5 per cent of total financing in the economy this year. Equity financing in the year to May stood at 290 billion yuan (HK$367 billion), just 4 per cent of total credit created. Banks, meanwhile, made new loans of 5.3 trillion yuan during the same period, roughly 76 per cent of total financing. "The equity market's importance as a channel of funding for the real economy is quite small," concludes HSBC, which gives a potential added stimulative effect to policy easing in response to the declines in the stock market. "If history is a guide, there will be sizable deposits flowing back into the banking sector as the asset rally cools down. This may help improve the transmission impact of monetary easing."
