CHART: Chinese may regret ditching gold for stocks
As Chinese bullion imports fall, a comparison between gold price and Shanghai Composite shows extent of equities bubble
Mixed economic data out of the US, Greek bailout talks on a knife edge and renewed fighting in Eastern Ukraine couldn't lift the gold price off near one-month lows around $1,180 an ounce on Tuesday.
After briefly topping $1,300 an ounce in January gold is now back to its 2015 opening levels and down 5% over the past 12 months.
The continued strength in the dollar and near record-setting US equity markets can take some the blame for gold's weakness.
Nowhere is the rotation out of gold and into stocks more visible than in China.
In April China's imports of gold via Hong Kong fell by 21% month on month and 20% year on year to the lowest level since August last year.
Swiss Federal Customs Administration also show a sharp contraction although imports are still well above levels seen this time last year.
Capital Economics, an independent research house, says the attractiveness of gold compared to other investments in China has been reduced by the strong performance of the local equity market in recent months.
The Shanghai Composite index is up 52% year-to-date and 141% year on year while Chinese gold bullion imports have declined by 83 tonnes during the first four months of the year, something this chart puts in stark relief:
A defining feature of the Shanghai and Shenzhen stock markets is the high percentage of retail investors.
A whopping 80% of investors buy and sell stocks using their own accounts. On US stock markets that figure is less than 14% and even when including indirect ownership it's less than half.
The recent NPR documentary gives a glimpse of just how stocks fever has taken hold in China. Here's a short extract:
Across the street, beneath a maple tree, stands Li Jingfei. He's quietly pitching another theory, based on the I-Ching, a classic Chinese text, originally used to predict the future.
"The I-Ching is a summary of laws that dictate the formation of the universe," Li says. "Everything's development needs to conform to this set of laws."
That includes, Li says, Shanghai's stock market.
Li's investing ideas aren't the most imaginative on the block. There's yet another tout who insists he can pick winners based on the theories of Mao Zedong, who, incidentally, didn't like stock markets — let alone capitalism.
Image of electronic billboard in Yu Gardens Shanghai by Christopher.