China’s Stock Market Rally, Brought to You by Shadow Banking

China’s stock market rally from the end of 2014 to the present reflects in part a transfer of funds from the shadow banking industry to the stock market and the channeling of money through the shadow banking industry to the stock market. With investors hungry for yield in a lagging economy, the stock market has surged, with the Shanghai Composite rising 63 percent over the past six months. While analysts have noted that the stock rally does not reflect an advancing economic environment, the rally does reveal that the stock market is an attractive destination for savers seeking a profitable investment outlet and demonstrates that investors appear to have positive economic expectations.

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