Thursday, August 6, 2015

Healthy Capital Markets and Doubled Profits.

After the sharp decline in Chinese stock market indexes beginning in mid-June, the Chinese monetary authorities have attempted to bring stability back to the market.  Was the trend the stock market showed before the crash really stability?  Perhaps an overvalued stock market creates just as much damage in the economy as a sharp decline in prices.  The China Business Journal on August 3, 2015 reported on one aspect of how equity prices before the crash distorted financial decisions and the proper functioning of the capital market.
“数据表示,截至6月末,保险公司资金运用余额为103684.49亿元,较年初增长11.11%。其中固定收益类投资中,银行存款和债券合计62322.83亿元,占资金运用余额的比例为60.11%,较年初下降5.17个百分点,同比下降11.19个百分点;权益类投资中,股票和证券投资基金合计15386.11亿元,占比14.84%,较年初上升3.78个百分点,同比上升5.48个百分点。”["According to data for the end of June, insurance companies’ held ¥10.3 trillion worth of working capital, an increase of 11.11% from the beginning of the year. Of that, fixed assets, bank deposits, and bonds accounted for ¥6.2 trillion, or 60.11% of the total, which is a decrease of 5.17 basis points from the beginning of the year and 11.19 basis points from the same period last year. Among equity investments, stocks and securities accounted for ¥1.5 trillion, or 14.84% of the total, an increase of 3.78 basis points from the beginning of the year and 5.48 basis points from the same period last year."]
The same article states that in the first half of 2015, insurance companies made ¥229 billion in profit. That would imply that the stock investments made by insurance companies only need to fall by 15% to wipe out the entire industry’s profits. Maybe insurance companies’ profits should go back to being derived from the insurance business, not stock market speculation.