There are always clues to see how an economy is doing, if you are willing to see. Every week a department within the government releases reports, some have gained statue as the years go by because they speak to the national picture. Some are regional in nature After you see that you are doing okay, what is the outlook for the areas you have investments in. Every economy runs on credit from the banks or are the banks lending money to companies? For individuals you want to now how credit card payments are doing? or car loan payments, because if you fall behind a viable option for the auto dealer is repossession of an asset. Now if inventory is rising on the car lots, maybe the dealer does not want another vehicle and is willing to extent the payments. There could be options. However, for the drivers of the country economy, companies need access to credit. When times are tough or able to be tough, banks lend less money.
In an article from Reuters, the economy of China is the second biggest in the world, which is a good thing. For 30 years there was a property boom including building some of the best infrastructure on the planet. Then the property boom collapsed, asset prices fell and financial institutions in China were stretched to the limit.
In China, the state owns insurance companies and banks and the government announced it will give $54 billion to these financial institutions to shore up capital across the financial system.
China Life Insurance is one of the biggest insurance companies will receive $7.2 billion. Taiping Insurance will receive about $1.5 billion. People’s Insurance will receive about $3 billion.
The state insurers were directed to support the stock market with medium and long-term funds, while positioning them to help regulators manage smaller, high-risk insurance companies.
China Export and Credit Insurance would receive about $3 billion.
The Agricultural Bank of China will receive $32 billion, while the Industrial and Commercial Bank of China will receive $20 billion. Both banks will replenish core Tier 1 capital as Beijing leans on state banks to support growth.
Linking to dividend paying stocks, when a government has to add capital to banks and insurance companies, you know that itis not a good thing. There are too many assets being help whose loans are underwater or quickly approaching underwater status. If you have investments in those companies, it will take a few years before the stock prices go up. After the 2008 crisis, US banks prices were low and now they are much higher. If you wish you can put them on your list of companies to consider in the future, but do not buy yet. Having patience after a crisis, allows you to buy the best in the breed at a discount and that is a good thing.
There are more questions than answers, till the next time – to raising questions.
