Chinese positive despite stockmarket falls: Westpac

Westpac’s latest measure of Chinese consumer sentiment proves the equity market is not an important factor.

China shares

Westpac’s latest measure of Chinese consumer sentiment provided proofthat “the equity market is not an important factor in the collective psyche of Chinese households’’, the bank’s senior international economist Huw McKay said.

And the Reserve Bank of Australia has broadly backed up this finding in its latest quarterly monetary policy statement.

Every one of the five components in Westpac’s monthly survey increased in July, even though the stock exchanges in Shanghai and Shenzhen were in free fall.

The composite indicator rose from 112.3 points in June to 114.5 points in July.

In contrast, a year ago, when shares were doubling in value, consumers were “sending us decisive signals that they were uncomfortable”, Mr McKay said.

He told The Australian that “this provides empirical backing for the intuitive perception that the household sector and equity market don’t really relate to each other”.

In its statement on monetary policy, the Reserve Bank said: “It is unlikely that the decline in (Chinese) equity prices will have a large impact on economic activity through its effect on consumer wealth.”

The central bank said that as with the preceding rapid increase in prices, the decline was driven by retail investors and did not seem to be associated with a marked change in the outlook for the economy or the fundamental value of stocks.

“While the value of shares held by households has fallen sharply in recent weeks, household wealth in equities is still higher than it was at the beginning of the year, and shares are a relatively small share of households’ assets in China,” the RBA said.

Mr McKay said: “We always felt that this was the case, but lacked a neutral experiment to reinforce it” — until the events of last month provided the perfect setting.

“Losses accelerated as margin calls came through — poison for any asset market, and very vividly illustrated in China.”

If households were going to adjust their saving priorities in light of the equities collapse — such as holding on to their car for another two years, or diversifying — it would happen then, he said.

“But only 4 per cent of the urban population, about 29 million people, have active trading accounts, and for lots of people who have a few shares, it’s play money.”

Only 5 per cent say equities provide the best savings. Bank deposits appeal more to 30 per cent, real estate to 16 per cent, wealth management products to 20 per cent.

In the latest survey, the 1000 people randomly selected said that they believed business conditions would pick up, and they were more interested in the housing market.

“They were quite strikingly positive,” said Mr McKay.

The government made some mistakes in its injection of capital to attempt to halt the market’s collapse, and moved too soon, he said. But “you can’t say the consumer has lost faith in the countercyclical abilities of China’s leadership as a result”.