A pendulum effect has often existed between the stock exchanges and the Chinese real estate market. Money moved from one market to the other. Are we going to see a return to Chinese equities? This is what several observers think.
Who makes the market?
State-owned companies and interest groups are often in an excellent position to know which direction the market will take. More than once, they have used their privileged position to enter a market before the crowd. Thanks to their position, they were able to borrow easily and fuel speculation. One of the best moves occurred before the 2008 Beijing Olympics when the Shanghai stock exchange index saw its value multiplied sevenfold from 2005 to 2007. From its peak of 6124 points on 16 October 2007, it plunged 65% in one year. Currently, it is around 3200 points.
From real estate to the stock market
The authorities are “officially” trying to control the rise in property prices to avoid being too expensive for low incomes. They have put in place measures to limit purchases and introduced new taxes, with very relative success. They would like to see more capital flows into the real economy. The Bank of China has recognized.
The IPO of Ant is an important symbol. In a way, it represents the direction that China’s economy wants to take: digital, high-end, far from cheap Made in China, and a critical opening to individual shareholders. And, of course, the beginning of the transfer of investments to the stock market. The funds dedicated to individuals are overwhelmed. Interest for the investor is the support of the government behind this operation. When the government is present, the risk decreases as many public funds, such as social protection or large public insurances, are also among the shareholders. Everyone has an interest in the increase!
Other figures indicate a benevolent eye for the financial markets. The IPO approval rate is back to the highest levels of the last ten years. Nearly 96% of companies that applied in 2020 are approved. The rate is well above the lows of 2017, 82%, and 2018, 77%. Besides, the time required for the procedure is being shortened.
The return from the American dream
Investors should see many opportunities. Indeed, companies that will withdraw from the US market will return to the local stock exchange. The current cash flow difficulties and an uncertain future on cash inflows encourage companies to seek financing on the financial markets.
And the buyback
Investors should take advantage of the new share buyback scheme 股票回购. Columnist Sun believes that China has done an excellent job of emulating the United States to boost the share price. In the last two years, the amount of buybacks has soared, see graph :
So, it’s time to invest in the Chinese stock market?
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1rst October 2020