Two major global ratings firms said Thursday that the China stock market’s recent volatility doesn’t pose a systemic risk to either the economy or financial systems.
Fitch and Moody’s Investors Service, both based in the US, said because Chinese banks have little direct exposure to equities, there is no reason for them to change their forecasts on the Chinese economy.
In June, the Shanghai Stock Exchange Composite Index tumbled 30% off its June 12 high. Still, on Wednesday, China’s National Bureau of Statistics that the country’s gross domestic product grew 7% in the second quarter.
In a report released Thursday, Fitch said the second-quarter GDP growth supported its view that the equity market’s turmoil will have little effect on the real economy.
With direct investment in equities making up less than 1% of bank assets at the end of 2014, the report said this small allocation would have little affect on the banks’ investment portfolios.
“Fitch does not expect the equity market correction to have a major impact on Chinese banks’ balance sheets or pose a systemic risk to the banking sector. Banks are not allowed to lend directly to customers for margin lending,” the report said.
Moody’s agreed in its own report Thursday.
It said the stock market’s volatility wouldn’t affect its forecast that China’s real economic growth will come in between 6.5% and 7.5% this year and 6% to 7% in 2016.
“The direct impact from heightened volatility in China’s equity market on financial sector output growth will be limited, while the indirect effects of market uncertainty on consumer spending, employment and corporate investments will be similarly muted,” Michael Taylor, a Moody’s managing director and chief credit officer for Asia Pacific, told Xinhua.
Commercial banks’ direct exposure to the domestic equity market is low, and the stock market rout will not have a significant impact on credit quality, the agency said.
The Shanghai Composite Index rose 0.49% Thursday, while Hong Kong’s Hang Seng Index rose 0.43% following Wednesday’s selloff.