What I think about China stock market
A-share of China jumped nearly 10% since late July, with the recent rise in blue chips.
In addition, an investment initiative in both directions between the stock exchanges in Shanghai and Hong Kong set to begin operations in October, the change in the central bank to "targeted easing" policies, especially economic stimulus China since the second quarter of this year should all support a rising stock market.
If the stock markets of China could turn bullish depend on the effectiveness of the government's economic reforms.More information about marketing in China here
performanceThe performance of the stock market is usually related to economic growth. In fact, a falling stock market can not be fully attributed to a down economy. Similarly, a rebounding economy does not necessarily mean a booming stock market. This is illustrated by the two experiences of China and the United States.
Since 2007, China has maintained an average growth rate of 9% annual economic, fastest among all economies in the world, but its shares continued their downward trend. For example, the Shanghai Composite Index fell to a low of 1,664 points from a record high of 6124 and hovered below 2000 for the last two years, showing a bear market more than five years.
In an essay published in 2001, Warren Buffett divided the 34 years between 1964 and 1998 in two equal periods.
In the first 17 years, the American economy experienced a cumulative increase of 373%, while the Dow Jones Industry benchmark finished dish, mainly hovering around 875 points in this period. But yields on long-term government bonds surged to gross domestic product, up 13.65% from 4.2% on the back of inflation.
economy grew a more modest 177%In the second 17-year period, the economy grew a more modest 177%, but the Dow Jones organized a 10-fold increase (from 875 points in 9181).
Bond yields have fallen steadily, from 13.7% to 5.09%, due to the difficult monetary policy of the Federal Reserve that brought down inflation.
Buffett does not seek to prove that GDP is negatively correlated with equity returns but simply that in the long run, the inflation rate (and thus nominal interest rates) that matter most to valuations actions and investor returns.source wantchinatimes.com
Looking back on the economy of China, the broadest measure of China's money supply, M2, in the last eight years has increased by almost three times. Presumably, higher M2 should have reduced the interest rate charged to borrowers and increased the stock market. What ended up happening is that higher interest rates were charged for loans and credit to businesses and shares were down.
Increase in the money supplyThis is because the increase in the money supply could lead to an increase in loans and corporate loans, resulting in increased production and more economic activity which will then stimulate production costs and increase the demand for capital. Consequently, M2 plus lowers the higher interest rates charged to borrowers and shortages of money even caused.
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In addition, the policy of low interest of China in recent years rates have also unwittingly encouraged inefficiency and privileged investors to invest in making good use of the resources of cheap credit, resulting in a waste of capital and exacerbate shortages of capital in the market, while increasing funding costs for business and the conduct of higher interest rates.
A prerequisite for the stock market to turn bullish China is that the government should abandon its policy to boost economic growth based on printing more money and avoid low-yield investments that could wasteful of capital resources and reduce the real interest rate charged to businesses.
In addition, the government should help reduce the costs of doing business and increase profitability by reducing taxes.