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In many parts of Asia, households are finally learning to love risk. In Japan, a combination of policy, demographics and a search for yield have seen a new generation of savers pour into equities, pushing the benchmark Nikkei 225 index to record highs last year. In South Korea, retail investors have become a market-moving force, helping lift the Kospi index by two-thirds during 2025.
China has followed a different path. Last year, households were hoarding cash at unprecedented levels: in September they added nearly Rmb3tn to their deposits, the largest increase in six months, to reach a record Rmb160tn even as the yield on deposits has continued to fall. That risk aversion rose across asset classes, leaving local equities among one of the worst casualties.
With domestic savers reluctant to engage with the stock market, the benchmark CSI 300 Index, which tracks China’s largest blue-chip stocks listed on the Shanghai and Shenzhen exchanges, has lagged regional peers. It trades at a modest 14 times forward earnings as foreign investors have continued to pull money out of Chinese equities over the past two years. Domestic mutual fund inflows have also slowed.
Yet the very caution that was behind undemanding valuations is now starting to support the market. Years of property losses coupled with high youth unemployment have helped create today’s massive cash buffers. As China keeps policy rates at historic lows, with its benchmark lending rates unchanged for the seventh consecutive month in December, that pool of savings is starting to become a key support for the local stock markets.
Local banks would stand to benefit most. Abundant liquidity and strong capital buffers are helping keep profitability up even as loan demand and confidence remain weak. The sector trades below 0.6 times tangible book, a significant discount to global peers, despite dividend yields above 5 per cent, which is around double that of regional peers.
Structural challenges continue to cloud the outlook. China’s property crisis is expected to drag on into next year, according to Fitch Ratings, even as the government steps up stimulus efforts to revive demand. Unlike in previous cycles, today’s households face persistent uncertainty from weakening income growth and a fading belief in property as a reliable store of wealth. Companies also remain cautious about expanding capacity amid policy uncertainty.
But for now, liquidity that sat on the sidelines is starting to make a comeback into local equities. That shift is proving especially crucial for local banks just as policy leans more heavily on them.
june.yoon@ft.com
