The Central Bank of China(CBC)reported yesterday(Nov.26)that M1B,money supply in narrower definition,scored 3.57%annual growth rate in October,higher than 3.25%growth rate of M2,money supply in broader definition,forming a so-called"golden crossing,"a sign for funding momentum for the stock market.
Chen Yi-tuan,deputy director of the economic research department of the CBC,pointed out that the"golden crossing"will last until the end of the year,due to the low comparison base last year.
M1B is closely related to the funding momentum of the stock market,as it consists of liquid elements,including cash in circulation,checking deposits,and demand deposits,which are ready for use in stock investments.On the other hand,M2 comprises M1B,plus time deposits and foreign-currency deposits.The phenomenon of upward movement of M1B exceeding M2 is called"golden crossing"by market players,since it usually heralds the advent of fund-driven rally,according to historical experience.The golden crossing spells the end of the"lethal crossing,"with the annual growth rate of M1B dropping below M2,since October last year.
While the annual growth rate of M1B rose to 3.57%in October,the growth rate of M2 slipped to 3.29%in the month,partially due to switch of some funds to insurance and mutual funds,according to Chen Yi-tuan.
Chen explained that the third quarter was the season for stock-dividend issuance and investors tend to place their stock dividends under demand-deposit accounts first before switch to other outlets.Last year,many investors switched their funds from demand deposits to time deposits,due to the European-debt crisis.This year,majority of them transferred their funds to mutual funds,insurance products,and overseas funds,leading to decline in time deposits and M2 growth rate.
The"golden crossing"may bring about a round of fund-driven rally,reversing the sluggish trading volume caused by the imminent levy of stock transaction gains tax.Average stock trading volume reached only NT$63 billion in October,the lowest since February 2009.Fund-transfer deposits for securities investment plunged NT$84.1 billion to NT$1.24 trillion in October,the largest decline in two and a half years.
