Common man avoids stocks even in rich economies

Notably, India’s stock market was highly polarised as a handful of shares led the rally in benchmark indices while the majority of stocks, especially in the mid and small-cap segments, saw value erosion. India’s aggregate market capitalisation in dollar terms grew just 3.43 per cent last year, the lowest among the world’s major markets.

Interestingly, going by the Bloomberg data, China, the world’s second-largest economy, saw the highest market capital growth as on December 31, 2019. China’s stock market is an exchange where shares of Chinese companies are traded. The rich Chinese love to gamble. The stock exchanges in Shanghai, Shenzhen and Hong Kong thrive on price swings. Since public participation is very low, a few wealthy investors own 80 per cent of tradable shares. They drive the price swings in China’s equity market.

In China, less than 20 per cent of household wealth is in the stock market. Instead, they are invested in real estate. Banks offer low-interest rates on savings accounts since the central bank keeps rates low to make lending cheap. As in India, there is hardly any social security in China. That makes workers save relentlessly to pay for their own retirement.

It is unthinkable that the country’s top political dignitaries should make such confusing public statements inducing India’s financially weak people to switch over from RBI-governed low-earning fixed deposits in banks and post offices to investments in stock markets and bonds.

Incidentally, bonds carry a long maturity period, varying from 10 to 20 years. They are hardly suitable for small depositors. Globally, bank interest rates are linked to consumer inflation rates.

Instead of advising the country’s common man and small-saving community on the merit of investing in stocks and bonds, socially enlightened public representatives would do well to work on a meaningful social security package for all citizens before frequently fiddling with banks and small savings deposit rates to benefit the rich and market…

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