Consumers show increasing confidence in stock market
Chinese consumer confidence remained steady in May as a decline in optimism for future business conditions was offset by an improvement in consumers’ willingness to spend.
The Westpac MNI China Consumer Sentiment Indicator was unchanged at 111.1 in May, slightly below the average of the past 12 months of 112.4. The third rate cut in the current easing cycle came right at the end of our survey period and would have had only a marginal impact on the results this month. However, the 100 basis point cut in the required reserve ratio, effective April 20, is captured by this survey. An increase in confidence in the 18-34 and 35-54 year old cohorts made up for a plunge in confidence in the 55-64 age range to a record low. Excluding the older cohort, the CSI increased by 1.9 points from 111.8 in April to 113.8 in May. Lower income households reported a 3.1% decline in confidence which was offset by a 2.8% increase in sentiment among higher income households.
Consumer confidence has declined throughout much of the last year along with the deterioration in the economy. While sentiment remains at a low level, the recent stabilisation in the survey provides a tentative signal that the recent efforts to underpin economic growth are having some impact.
Consumers turned less optimistic about future business conditions in May, with the Business Conditions in One Year indicator now back to the level recorded before the authorities began cutting interest rates in November. There were also declines in the Current Business Conditions and Business Conditions in Five Years measures.
While consumers’ assessment of the current level of their personal finances worsened further in May and remains at a weak level, there were signs of an improvement in buying conditions. Durable Buying Conditions picked up on the month as our survey participants turned more optimistic about making a large household outlay. This was supported by improved readings on the detailed buying indicators for IT products, phones and household appliances and more positive results for spending on shopping and entertainment.
The sharp rise in share prices this year brought renewed confidence in the stock market with consumers reporting a slight or good investment return over the past year rising to the highest since June 2012. They were also slightly more optimistic that share prices would continue to rise over the coming three months and a record 7.8% of consumers said that local shares were the wisest place to keep their savings, with bank deposits, bonds and wealth management products giving ground to the stock market.
Commenting on the data, MNI Indicators Chief Economist Philip Uglow said, “Overall sentiment continues to bump along at a low level with consumers still worried about the current and future state of the economy. More positively, the modest improvement in consumers’ willingness to spend on durables and leisure items points to some improvement in the retail environment.”
Westpac’s Senior International Economist Huw McKay said that “There are a number of promising trends emerging in the detail of the survey. Most importantly, risk aversion seems to be receding. Direct investment in the share market and exposure via mutual funds is becoming increasingly popular, while simultaneously, the ‘good time to buy a house’ indicator has moved back above its long run average. It is also encouraging that the most optimistic age cohorts are those that are most active in the twin processes of household formation and durables accumulation.”
The Westpac MNI China Consumer Sentiment Survey is broken down by various demographics, including age, income and region. Traditionally the youngest age bracket of 18-34 year olds have been the most optimistic, followed by those aged between 35-54, with the oldest age group the most pessimistic.
Since the economy lost momentum last year though, we saw a convergence in absolute confidence levels, with age becoming less of a factor when measuring sentiment. More recently, though, sentiment among 55-64 year olds has been a significant drag, with the younger age groups relatively more upbeat. May saw overall sentiment in the older age cohort hit a series low with this age bracket particularly concerned about the outlook for business conditions.