The best opportunity for investing in China has just opened, with the Chinese government pledging to do all it can to ensure that the 8% target growth rate is met in 2009. The current stimulus package, as it stands, will be expanded to add more money to the local economy and lower the value of the yuan.
Currency Values are Important to Lead Exporters
Currency values are extremely important to exporting economies, and part of the new Chinese stimulus package is guided to actually increase inflation to grow the money supply and devalue the yuan. Devaluing the yuan in relation to other currencies keeps the Chinese economy exporting products around the world. Unfortunately, for China, further devaluation of the yuan will be difficult, as its economy seems to be the only remaining healthy economy in the world with one of the few rising stock markets of 2009.
Pumping China with Cash Pays in the Stock Market
The Chinese stock market is certain to reel as the Chinese stimulus makes its way through the market. Using the foreign holdings to pump up the stock market is easy for China and a great way to profit in 2009. US traded ETFs like FXI are the perfect way to play the market as new money inside China boosts corporate profits and helps out the stock market. Fiscal spending will be increased by 22% in 2009 – which is more than enough reason to buy. The growth in fiscal spending this year is not as large as last (25.4%), however, it’s sure to fire up an economy that has been lagging as of late.
China Still Growing but Nothing Like It Was…Yet
China is the only economy out of the world's five largest to post a gain in 2009. And though the economy is still growing at a near 7% per year pace, it’s nothing like it was back in 2007 with 13% year over year growth rates. Much of this slowdown, however, can be solely attributed to the increasing value of the yuan and overall distaste for Chinese products as the world economy slows.
Cash in with Dividends Too
We can only expect that many Chinese corporations will raise their dividend in 2009 as stimulus money makes its way through the government and into corporate bank accounts. Much of the stimulus is centered on public works, including improving infrastructure; however, everyone will feel the net benefit.
With 1.3 billion people living in China and $585 billion to be spent on the stimulus, some economic growth will come. Many Chinese citizens live on less than $2 per day, but this stimulus package is worth nearly $500 to each person in China. This equates to 250 days of working wage for most Chinese citizens, an excellent amount for the individual, but not too much in comparison to their current foreign holdings. All systems are a “go” on Chinese equities.