China’s housing bubble is starting to pop, so, right on cue, its stock bubble is starting to re-inflate.
Now they’re nowhere near their 2007 highs—in fact, they’re barely halfway there—but Chinese stocks are still looking plenty frothy right now. They’ve actually, as BNP Paribas’ Richard Iley points out, been the world’s best performing asset class the last nine months, up almost 80 percent. And that’s despite the fact that China’s growth has slowed to a 20-year low and its industrial profits just fell 8 percent.
Why are stocks up so much if the economy isn’t? Well, there aren’t a lot of other places for Chinese investors to put their money. The government doesn’t let them move it overseas—although some people manage to get around this by pretending to pay more for imports—and there aren’t a lot of options at home. Banks are only allowed to pay people paltry interest rates, so that state-owned companies can borrow for less. And the property market, which had looked like the economy’s one good store of value, has become so overbuilt that not even the government’s attempts to prop it up, like making it easier to buy a second home, has stopped its boom from turning into a bust. Indeed, new home prices were down 5.1 percent in January.