Chinese Stock Market Climbing as Investors Buy Domestic Shares

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Photo Credit: Telegraph UK

The Chinese stock markets are one of the few markets in the world still rallying, and Chinese citizens are buying up shares in droves to capitalize on the runaway market. Thus far China’s stock markets have outpaced the rest of the world, prompting huge returns and more interest in Chinese securities. Though the boom year of 2007 is over, China is still beating the rest of the world and will be for some time to come.

More Chinese Entering the Stock Market

According to the China Securities Depository & Clearing Corp. more than 427,000 trading accounts were opened by Chinese investors just last week. That number is twice as high as the previous week, and there appears to be no end in sight as the Chinese are taking interest in their own stock markets, rather than investing abroad. At present, individual investors account for 54% of the Chinese stock market and that number is quickly rising. The total value of the Chinese stock market is said to be just under $2.3 trillion.

Looking Past Exports

From an outsider’s perspective, the drop in China’s exports may be a warning sign, but most Chinese citizens have yet to feel the pinch. Though its total exports have dropped, its imports are dropping even quicker, and the January trade gap was the best in China’s history.

The Stimulus

China’s efforts to stimulate its economy through a new infrastructure-based stimulus package cannot yet be measured. What can be measured, however, is its extensive loan program, which has provided a large increase in M2 money supply, but has yet to affect M1. The credit programs do not create new M1 growth, as the money is never printed, but instead lent through the banking system. Even with the vast lending program, which many analysts peg as the reason Chinese stocks are booming, the amount of money supply growth is nothing like it was last year or even the year before.

Investors Banking on Long Term Recovery

Unlike the US markets, where many hedge funds and private equity firms dominate Wall Street, the same cannot be said for China. Individual investors generally are buy-and-hold type investors with limited interest in buying and selling on a dime. Because of this, any substantial build-up in China will be gradual and limited but more sustainable for the long term. Individual investors who keep their money invested in good times and in bad force the market to bottom. During 2008, speculative dollars left while long term investments kept a modest floor below an obviously bubble market. Today the same is true, except what analysts view as speculation is mostly wealth building capital.

65% Lost in a Year

After such a terrible loss of capital in one year alone, it’s about time for a recovery. Before China appeared as one of the best performing market in 2009, it was long the worst performing of 2008. At this level, a bounce should be expected, even if time does prove this move to be a dead-cat.

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