Recently, I came across an interesting post on Michael Pettis’ blog, called “Chinese savings and the wealth effect”. Under consideration is how Americans and Chinese react to changes in the interest rates. When interest rates rise, Americans tend to increase their savings and consume less. Interestingly enough, Chinese do the opposite. They actually put away less and consume more. When interest rates fall, Americans save less (consume more) and Chinese save more (consume less).
Apparently, it works like this: most Chinese save via bank deposits, not investments. They keep a certain interest rate level in mind they know will allow them to save a certain amount of money in the future. When banks’ deposit rate goes down, they want to save more “to compensate”. As a result,
“Declining interest rates in the US usually (but not always) mean that Americans feel richer because the market value of their homes, stocks and bonds has risen. Declining deposit rates in China usually mean that Chinese feel poorer because the return on their savings relative to their implicit discount rate has declined.”
I may post here relevant (in my opinion), and not necessarily recent, quotes. Rather than analyzing specific investments, I will attempt to focus on investors' sentiment regarding broader asset classes and/or specific securities. These will be my thoughts/reactions/questions, and they are not and should not be taken as investment advice.
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- In particular, I am interested in investors' sentiment and valuation levels. Disclaimer: I work at an Investment Management firm. My comments on this site are not posted in that role, and no opinions of mine should be construed to be recommendations of or to reflect the views of my employer.
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