[BEIJING] Chinese households ramped up their cash holdings last month in a sign that they have begun shying away from local stocks just as the market is challenged by renewed trade tensions.
Household savings rose by 2.96 trillion yuan (S$538.3 billion) in September, the most since March, according to data released by the People’s Bank of China late on Wednesday (Oct 15). The pace of increase was higher than that in the same month last year.
The renewed build-up of savings may deprive the stock market of a key source of support, after low deposit rates and meager government bond yields spurred investors to seek higher returns in equities.
Fading support from households bodes ill for Chinese stocks at a time when trade tensions between the US and China are showing no signs of easing.
“The migration of China’s household deposit to riskier assets has decelerated,” which will likely moderate the rally in stocks, Li Chao, chief economist at Zheshang Securities, wrote in a note.
That change in sentiment is already visible in recent market performance. China’s benchmark stock index has retreated from the highest level since 2022 touched last week, while bond yields have eased after the latest series of tit-for-tat moves by Beijing and Washington reduced the appetite for risky assets.
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In another sign of lower demand for stocks, deposits at non-bank financial institutions, which are typically used for margin deposits, dropped for the first time in three months in September.
However, some analysts attribute the slowdown in non-banking financial deposits in part to higher holdings of cash in a transitory phase as savers look for higher-yielding products.
A government proposal to revise charges on mutual fund fees last month, which is expected to increase costs for those seeking a rapid turnaround, may also have kept some investors on the sidelines, according to GF Securities analysts including Zhong Linnan.
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Still, the broader mood remains one of caution.
Xiaojia Zhi, chief China economist at Credit Agricole CIB, said market sentiment could turn more cautious in the face of tariff risks and after the sharp rally in stocks. “Households could be less in a hurry to make new equity investment.” BLOOMBERG