Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Boris Johnson Hits Coronavirus Panic Button Again, UK Accelertoing Covid-19 Second Wave - 25th Sep 20
Precious Metals Trading Range Doing It’s Job to Confound Bulls and Bears Alike - 25th Sep 20
Gold and Silver Are Still Locked and Loaded… Don't be Out of Ammo - 25th Sep 20
Throwing the golden baby out with the covid bath water - Gold Wins - 25th Sep 20
A Look at the Perilous Psychology of Financial Market Bubbles - 25th Sep 20
Corona Strikes Back In Europe. Will It Boost Gold? - 25th Sep 20
How to Boost the Value of Your Home - 25th Sep 20
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Three Sweeping Events in China's Financial Markets

Stock-Markets / Chinese Stock Market Mar 19, 2007 - 10:17 AM GMT

By: Money_and_Markets

Stock-Markets

Suddenly, just in the past week, China has jumped ahead with three sweeping reforms to solidify its growth, bolster its financial markets, and more rapidly transform itself into a 21st century market economy.

Each step, when taken separately, is fuel for more growth. All three, when combined, are electrifying.

Whether or not these reforms bring more political freedom to China remains to be seen. But they're likely to set off a chain reaction of further legal changes, and ultimately, an end to nearly all vestiges of communism in China's economy.

Reform #1 Chinese National Legislature Passes New Property Law


This is a law that has been hotly debated for fourteen long years ... vehemently opposed by old-guard leftists in the highest echelons of power ... and repeatedly voted down by those who wanted to retain the government's wanton legal rights over private property.

But this past Friday, those forces were roundly — and profoundly — defeated. And in their place, we witnessed a new surge in the power of the merchant middle class, entrepreneurs and even farmers.

Surrounded by flowers in the Great Hall of the People on Thursday, Vice Chairman Wang Zhaoguo, put it in this context:

China is an increasingly prosperous society. And in this society, personal wealth must have legal protection. The country's economic and social changes make the law absolutely necessary.

The 2,835 deputies of the National People's Congress listened intently. And the next day, the majority ruled to pass it, forever changing China's legal landscape.

Passage of the law won't impact on-the-ground realities all across China's vast territory overnight. Enforcement will still be an issue for months, perhaps years.

But until now, local officials have had the right to seize businesses, farmland and even homes with virtual impunity. They've been able to sell off those properties to large commercial interests or speculators. And as a result, small- and medium-sized enterprises in many sectors, especially in rural China, have been squeezed or even squashed.

Your take-away from this change: If you thought China's growth has been impressive even without laws protecting personal property ... and even without the enthusiastic participation of the masses ... wait till you see what can happen as this reform unleashes the entrepreneurial spirit of hundreds of millions of Chinese citizens that, until now, have been held back or left out!

Reform #2 New Phase in the Development Of China's Financial Markets

For the first time, China will now allow trading in stock index futures and options.

This may not sound like a major change to most people. And to some, it may sound like adding a new layer of speculation. But if handled properly, these instruments can have a very positive impact.

China already had three futures exchanges — in Shanghai, Dalian and Zhengzhou. But they were exclusively for commodities like copper, aluminum, rubber, fuel oil, soybeans, corn, and sugar.

Therefore, anyone dealing in commodities had a way to protect their business by hedging with futures ... but institutions buying stocks had to take their chances.

As long as the stock market was tiny, no big deal. But now China's stock markets have been growing by leaps and bounds. Just since the end of 2005, the total value of China's stock markets has tripled — to more than U.S. $1 trillion. And still there was no way for investors to hedge effectively.

With this new reform, all that is changing. Last September, China already set up its China Financial Futures Exchange in Shanghai. And now, on April 15, the new rules on stock index futures and options go into effect. It could add another good measure of confidence and stability for both domestic and foreign investors.

Reform #3 The Largest Investment Fund of ALL Time!

China has just created what could soon be the largest investment fund in history.

When it was his turn to speak at the Great Hall of the People, Finance Minister Jin Renqing made the fund's goal absolutely clear: To tap into China's $1.1 trillion in foreign reserves ... to invest a big chunk of that money in stocks ... and to create a massive, unprecedented new wave of investment.

Some pertinent facts:

  • Economists expect the Chinese government to allocate $200 billion to $400 billion to the new fund.
  • The largest mutual fund in the U.S., the Magellan Fund, has “only” $50 billion or so on assets. So right off the bat, the new Chinese fund would be four to eight times larger than anything we've ever seen in the U.S. financial markets.
  • Already, the Magellan Fund is so large that it must tip-toe into the markets, lest its heavyweight buying power drive up the price of the stocks that it's adding to its portfolio. Since the new Chinese fund will be many times larger, even if its managers move slowly ... and even if they diversify across a wide range of stocks in China and around Asia ... they're still likely to put great upward pressure on their values.
  • China's Finance Minister said Beijing is following the lead of Singapore's Temasek Holdings, which has poured billions into Singapore Airlines and Singapore Telecom ... has invested heavily in banks, shipping and real estate ... and has pumped billions more into Asian economic giants like China, India and South Korea.
  • The stocks and stock markets that Temasek has touched have risen substantially, sometimes by a factor of up to 12 to 1. But even with its massive $90 billion in assets, Temasek is small by comparison to the $200-$400 billion expected in the Chinese government fund.

Put yourself in the shoes of the Chinese government officials who are currently managing their vast reserves, and you'll see this phenomenon from their perspective:

You're in charge of investing China's reserves. But right now, you've got nearly all of your $1.1 trillion sitting in U.S. Treasuries plus other cash-equivalent assets. It's the largest hoard of liquid cash in the history of mankind. Yet all you're getting out of it is a meager 3 percent interest per year.

Meanwhile, for the past 32 years, your counterparts in Singapore, managing Temasek Holdings, have been getting an average annual return of eighteen percent.

So you're green with envy. And for many months, you've been asking the simple question: “If they can do it, why can't we ?” Well, now you have the answer: “You can. And you will!”

No End to the Great Cash Drain in the U.S.!
No End to the Great Cash Pile-Up in China!

Meanwhile, back in the U.S., the Commerce Department has announced our worst trade deficit in history for the fifth year in a row:

  • The red ink in the current account (the broadest measure of trade) was $856.7 billion in 2006.
  • That means that every single day of the year, holidays included, $2.3 billion is being drained from the United States and winding up in the coffers of foreign corporations, foreign investors and foreign central banks, especially China's.
  • Our deficit is now at a record 6.5 percent of the total economy, a continuing — and worsening — drain on U.S. growth and U.S. corporate earnings.
  • Even investment inflows — which had been positive in every single year since the great crash of 1929 — have turned negative. Instead of investment money flowing into America to the tune of $11.3 billion in 2005, now it's flowing out , with $7.3 billion leaving last year alone. This puts the U.S. dollar in even greater jeopardy.

In contrast, China's trade surplus surged to a record-smashing $178 billion last year, up by a hard-to-believe 74 percent from the previous record of $102 billion set in 2005.

And now, just in the first two months of the year, China has chalked up a surplus of almost $40 billion, about $28 billion more than the same period last year.

At this rate, China's stockpile of cash, already at $1.1 trillion, should easily exceed $1.3 trillion by the end of the year — still more cash fuel to energize China's new investment company.

Overall conclusion: Despite bumps along the way, expect a continuation of the megatrends that propelled China's 11 percent growth last year ... that drove Shanghai's stock index up by over 130% in 12 short months ... and that are continuing to spread their impact worldwide.

Good luck and God bless!

By Martin Weiss

P.S. In my Saturday Money and Markets (“ Urgent Action Alert from Martin ”), I gave you a link to my free educational report on how to hedge in down markets. But instead of letting you download the report, it took you to my recorded message. I apologize for the error. To download the free report, click here .

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.MoneyandMarkets.com


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules