So the People’s Bank of China – more specifically, PBoC Deputy Governor Yi Gang – says it’s not concerned about the massive growth in bank lending in the first quarter. In case you haven’t been paying attention, that lending amounted to US$670.9 billion, 91.6% of China’s target for the entire year.
Others – more specifically, the China Banking Regulatory Commission (CBRC)- are less thrilled. It is a law of nature that more easily available money will lead to more misuse of said money. But in the absence of proper casinos on the mainland (and given the treacherous state of the property market right now), where can less-than-honest borrowers squander their ill-gotten cash?
You may have heard of something called the Shanghai Stock Exchange – which is to all intents and purposes a casino (bar the Greco-Roman decor and scantily clad women). The Shanghai Composite Index ended the week down about 2.2% from last Friday’s close, but it remains up more than 34% for the year. While not all of that 34% came from lending funneled straight into the market, the CBRC is worried enough that it is said to be considering introducing rules to govern where loans can be directed.
What does all this mean for the Capitalist Roader Fund? Not much, for the time being. The fundamental state of the economy hasn’t changed in the last week, nor has the fundamental silliness of the SCI’s performance this year (though the CBRC’s move makes us think our suspicions were well-placed).
It’s of course too early to tell if this week’s fall represents the market simply taking a breather, or if it’s the beginning of a larger correction. That said, we get the distinct feeling that we, the CBRC and the other realists are in the minority.
Does that mean we should jump into the market? It’s something we need to think about.
The SCI is down 28.7% from June 3, 2008, while the Capitalist Roader Fund remains down 33%.