- Too much money chasing limited supply of assets, causing “Asset Shortage”.
- The “asset shortage” in the Chinese stock market has been mainly reflected in the small to mid cap stocks.
Today, what’s been talked about the most in China is guarding against systemic financial risks, indicating that China’s asset price bubble problem has been very serious.
Over the years, “asset shortage” has been a hot topic in China. The reason why there is shortage of assets, from the supply and demand point of view, is too much money chasing limited asset supply, resulting in rise of asset price. From 2000 to the present, the China real estate market has indeed being the case: land supply subject to strict control in the 1st and 2nd tier cities, but money supply has increased substantially, leading to real estate price continued to rise.
However, the Chinese stock market performance during the same time seems to lag the stellar performance of the property market. Does this mean the “asset shortage” not in the stock market? In fact, a close examination shows that in the twenty-five years (1990-2015) the stock market “asset shortage” was mainly reflected in the small and medium cap stocks.
From 2006-2015, if someone at the beginning of each year buys the bottom 5% market cap A-share stocks, the total return over the 10 year period is an eye-popping 61 times, or over 50% per annual.
In the first half of 2017, 246 companies completed IPO on the A-share market, raising a total of RMB 125.6 billion, an increase of 303% and 336% yoy, respectively. Nevertheless, there are still more than 600 companies waiting in the queue to be listed. As long as the current asset price level making the “asset manufacturing industry” profitable, the supply of assets will likely to continue.