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Under the Banyan Tree - What to do with the world’s largest cash pile
871 Plays29 days ago
Herald van der Linde sits down with Prerna Garg to discuss what mainland Chinese savers could do with a mind-bending USD22trn in savings, and what that could imply for markets at home and beyond.
Disclaimer: https://www.research.hsbc.com/R/101/tsnBdzn. Stay connected and access free to view reports and videos from HSBC Global Research follow us on LinkedIn https://www.linkedin.com/feed/hashtag/hsbcresearch/or click here: https://www.gbm.hsbc.com/insights/global-research.
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Transcript
Introduction to HSBC Global Viewpoint Podcast
00:00:01
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
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00:00:24
Speaker
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Chinese Savers and Investment Opportunities
00:00:45
Speaker
Hello and welcome to Under the Banyan Tree with myself, Harold van der Linde, friends away. So I got my fellow Asia equity strategist, Prerna Garg with me. And today we're asking a very interesting question.
00:00:56
Speaker
What can Chinese savers do with the mind bending amount of money that they've got stashed away? It is 22 trillion with a T, US dollars to be precise. That is the largest cash pile that the world has ever seen.
00:01:10
Speaker
And it's there in mainland China and households are just sitting on top of it. So what opportunities does that present for investments in mainland China, Hong Kong and a wider region? Well, stay tuned to find out from HSBC's Global Research you're listening to Under the Benyutree.
00:01:33
Speaker
Prana, welcome to the podcast. Thank you for having me, Arul. We're going to talk about this immensely humongous gargantuan cash pile that is in China. It's 22 trillion US dollars.
00:01:45
Speaker
How much is 22 trillion dollars? So that's a lot of cash. that i can like you know If we relate just with China, mainland China, that's almost twice the size of their market cap. All the stocks listed in Shanghai and Shenzhen together, it's twice that amount.
00:02:00
Speaker
And if the Chinese households decide to go and do some property shopping, they can just buy the whole of residential real estate in the yeah UK and France together and still be left with a few trillion of cash spare in their pockets. To do some readjustments so they could buy all the houses in the yeah UK and France to with that money.
00:02:21
Speaker
I've actually, while you were answering, I was quickly going on to AI, and the thing is still calculating, actually. But if you would put that in containers and have 100-US dollar bills, it would fill up over 7,000 standard containers.
00:02:35
Speaker
Now, it's it's still calculating because it makes all sorts of adjustments. It doesn't matter. But um it's around 7,000 containers, which in itself I struggle to to figure out how how much that actually. yeah Yeah, Harold, that's a massive number, of course. no But the whole amount is not the amount available for Chinese households to spend today.
00:02:54
Speaker
Why not? So Asian households, and in particular, mainland Chinese households, they are always known for saving a lot of money. That's because they want to keep some spare money for their pensions once they retire in order to fund their retirement for their kids' education, for their health care expenses.
00:03:10
Speaker
So not the whole amount is available for spending at the moment. That's right. So they wouldn't go out and buy all the houses in France and and the UK, of course, because there wouldn't be nothing left for them to to live on. To live on. But we ah did some calculation and over the last 15, 20 years, we see that in general, mainland Chinese households, they save around 750 billion US dollar every year into their cash pile. Okay, so also so Almost one trillion. Almost one trillion. But during the pandemic, they accelerated the savings and they were saving around two and half trillion every year.
00:03:43
Speaker
So because of like, you know, all the uncertainties driven by the pandemic and with equity market market not doing so good, they had accelerated their saving rate. So if we adjusted for the saving rate that was in China a few years back,
00:03:58
Speaker
We calculate that the mainland Chinese households are sitting on an excessive saving of seven and half trillion US dollars. Okay, so basically what you're saying is out of the 22 trillion, there's a lot of money they need for themselves to finance their their future and retirement.
00:04:12
Speaker
But there's about seven trillion dollars that they've actually saved because they didn't want to buy property, they didn't want to buy stocks, and there was uncertainty and these sort of things,
Investment Trends in China: Equities, Gold, and More
00:04:21
Speaker
right? Now, that is changing now because sentiment is coming back in China, right? And with the sentiment, the households can think of investing these ah this ah excessive saving into various asset classes.
00:04:32
Speaker
They can think of buying more gold. They can buy more crypto coins. They can buy bitcoins. But they can also buy more equity. Yeah. Now, before we go to equities, I do know that our colleague, Michelle Kwok, has just gone to Hangzhou and Shanghai.
00:04:46
Speaker
and found out that actually the property market is actually fairly buoyant actually in some of these places now. So some of that money seems to go back into property. People wanted to buy property, was probably scared to do so a couple of years ago, and hold it up on cash. and And this is one of the reasons I guess they sit on cash, because if you think, and we are in a what we call a deflationary environment or disinflationary environment in China, you think prices are going down, it makes sense to hold out cash because you can buy more stuff in the future than you can do today.
00:05:14
Speaker
But with property, we see that they're coming back into the property market. But equities as well? In equities also, since September last year, we see that the sentiment regarding equities have changed in mainland China. The households are buying more and more equity.
00:05:28
Speaker
And we see that they are buying especially more of Hong Kong listed companies. So these are the mainland Chinese companies that are listed in
Hong Kong's IPO Rise and Mainland Investment
00:05:36
Speaker
Hong Kong. Yeah. Think of internet names, think of EV companies.
00:05:39
Speaker
So households have specially accelerated investing more into Hong Kong listed equity. So how much have they bought since the beginning of the year, for example This year, they've bought around 80 billion US dollar of equity. So if they got seven a half trillion and 80 billion, that is just like, that's like a flitter of it, and And it was enough to move the market, the Hong Kong, or the HSI index, it's up 20% year till date.
00:06:03
Speaker
And ah most of this money has come from mainland China via the southbound connect. So that's the connect which allows the households from mainland China to ah invest into Hong Kong. And we see that they continue to do so. They continue to pour more money into and to introduce into the stock market.
00:06:19
Speaker
This must be good for IPOs. Yes, this is good for um equity market in general. And in particular, with IPO market, we see there's a turnaround in the market. So pre-pandemic, Hong Kong dominated the IPO space in Asia. We saw massive IPOs, a large number of IPOs coming every year.
00:06:36
Speaker
But the situation shifted a bit and ah the momentum on IPO was not strong for last few years. But this year we see that Hong Kong exchange has come up again. So um it dominates the global global space. We have seen the maximum number of listings across the world coming in Hong Kong so far this year. This is sort of interesting thing because in the past Hong Kong was always seen as the gateway to mainland China. If you want to do business in China, you've got to go through Hong Kong. That was 15, 20 years ago But maybe Hong Kong is going to be increasingly, it's going to be the other round other the way around. It's going to be the gateway to the world for China, right?
00:07:10
Speaker
So Chinese savers are now investing in Hong Kong companies or they can go elsewhere in the region, of course, as well. They're doing that. And interestingly, um if I may highlight, mainland Chinese companies raised more money from Hong Kong exchange last year than they did from the Shanghai shanghai or shenzen exchange together. And this trend has continued well into this year as well. And I guess this makes sense for Chinese companies if they have an sort of international strategy. You want to go and sell your EVs into Indonesia or the Middle East.
00:07:40
Speaker
You need dollars so you can absorb that there, right? And it makes sense for the households in mainland China also to invest in Hong Kong listed names. Because um ah more often, if a company has listing both in mainland China and Hong Kong,
00:07:54
Speaker
In Hong Kong, they tend to trade at a discount to mainland China. So it's basically cheaper to buy the same company stock in Hong Kong than it is in mainland China. So makes sense as well. And I guess this is one of the reasons why we've seen kind of a wobble in domestic interest rates in
Liquidity and Market Dynamics in Hong Kong
00:08:10
Speaker
Hong Kong. The so-called interbank rate in Hong Kong, high bore, of which a lot of mortgages in Hong Kong are priced off in.
00:08:16
Speaker
Because that's come down because simply there's liquidity coming to the market. There's more money There's other factors there as well as the way that currency board in Hong Kong works and stuff. But it's one of the additional sort of factors that means that money is flowing into Hong But yeah, in general, the liquidity of equity market, the liquidity in the IPO market has increased a lot because of the money coming into Hong Kong. And just quickly across the rest of the region, we've just talked about the Chinese that sit on so many so much cash, the 7,000 containers.
00:08:47
Speaker
ah We see also money, for example, in Korea and other parts of the region coming back into Asia, right?
Regional Investment Shifts in Asia
00:08:53
Speaker
money is coming back. So most of the major Asian markets, which includes Korea, Japan, and also the Southeast Asian countries, they were buying a lot of foreign equities, and especially the US equities in last few years.
00:09:04
Speaker
But this year, and more like, you know, in recent weeks, we see that this money is coming back into Asia, and it's coming back into the domestic market. So that can also be a big driver for ah the individual domestic exchanges in Asia. Fantastic.
00:09:19
Speaker
I think there's maybe a couple of conclusions we can draw from this. But before we do that, I'm going to take a quick break with a nice tune and then we'll be back.
00:09:37
Speaker
So, Harold, so now we know that male and Chinese, they are sitting on a massive cash pile and that the Asian investors are investing more in their domestic market. But what does this all mean for equity market in Asia in general?
00:09:49
Speaker
Now, ah first, I'm going to make a small adjustment because while we were talking for about four five minutes, my AI has reconsidered its calculations. It's gone from 7,000 to 6,800 containers.
00:10:02
Speaker
because it's suggested you can't completely fill them with the paper at the very top. So it is a very specialized sort of calculation debate, but the idea still is a lot. That was one important piece of information us. Yes, completely useless information. But anyway, I think that broadly speaking, three conclusions I take out of this.
00:10:18
Speaker
First of all, um mainland Chinese families are increasingly investing into, say, Hong Kong or even the rest of the world ah through Hong Kong. So the role of Hong Kong is changing. Instead of being a gateway to mainland China, it's maybe becoming mainland China's gateway to the rest of the world.
00:10:36
Speaker
ah Secondly, I think this is just positive for regional equity markets in general. We have more regional money that is basically being reinvested in that sense. so and And thirdly, and this is very much connected to this, more regional capital.
00:10:53
Speaker
interconnectivity. Now, Japanese households we know are buying Indian stocks and I know that Indonesians are buying Chinese stocks here in Hong Kong. So, ah these capital flows stay more in the region and fund this.
00:11:06
Speaker
This is good, this should lower maybe even a cost of capital over the long run, which is good. A bit technical, but that's good for equities in the in general. But it means that savings in the regions are being rechanneled into investments in the region as well.
00:11:19
Speaker
So we need to see maybe a bit more IPOs in some of these markets to attract that capital as well. And if I may add, this also means that the reliance on foreign investors in Asia is coming down.
Stability of Asian Markets and Reduced Foreign Dependence
00:11:28
Speaker
No, absolutely. This is a good point because when I started my career in in the mid-90s, it was all about, I was in Indonesia and an analyst it was all about talking to people in, and of course, in Hong Kong, Singapore, but London and New York because that's where the larger emerging market funds were run. and Argentina had a crisis, which had hit at some point in time.
00:11:47
Speaker
People sold Indonesia because it was seen as one class. That is changing now. If Argentina has a crisis or another market outside the region, the Asian investment pool is not going to disappear because yeah people see that as completely separate.
00:11:59
Speaker
So the way money flushes around the region is changing. That's ah that's very important. So an important topic to get our head around is and also know that we're talking about, about say, 6,800 containers instead of 7,000.
00:12:10
Speaker
Thanks, Pruner, for coming on to the Under the Banyan Tree podcast. Thanks for having me, Harald. And that's all we've got time for today, ladies and gents. A big thank you, as always, for joining us under the banyan tree.
00:12:21
Speaker
Listen, like and subscribe if you haven't done already. And remember, our sister podcast, The Macro Brief, is out every Friday with our analyst take on the global economic stories that matter. We'll be back again next week.
00:12:32
Speaker
For now, though, it's goodbye from Hong Kong.
00:12:59
Speaker
Thank you for joining us at HSBC Global Viewpoint. We hope you enjoyed the discussion. Make sure you're subscribed to stay up to date with new episodes.