Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
UK General Election 2019 BBC Exit Poll Forecast Accuracy Analysis - 12th Dec 19
Technical Analysis Update: Tadawul All Share Index (TASI) - Saudi Arabia ETF (KSA) - 12th Dec 19
Silver Miners Pinpoint the Precious Metals’ Outlook - 12th Dec 19
How Google Has Become the Worlds Biggest Travel Company - 12th Dec 19
UK Election Seats Forecasts - Tories 326, Labour 241, SNP 40, Lib Dems 17 - 12th Dec 19
UK General Election 2019 Final Seats Per Party Forecast - 12th Dec 19
What UK CPI, RPI INFLATION Forecasts for General Election Result 2019 - 11th Dec 19
Gold ETF Holdings Surge… But Do They Actually Hold Gold? - 11th Dec 19
Gold, Silver Reversals, Lower Prices and Our Precious Profits - 11th Dec 19
Opinion Pollsters, YouGov MRP General Election 2019 Result Seats Forecast - 11th Dec 19
UK General Election Tory and Labour Marginal Seats Analysis, Implied Forecast 2019 - 11th Dec 19
UK General Election 2019 - Tory Seats Forecast Based on GDP Growth - 11th Dec 19
YouGov's MRP Poll Final Tory Seats Forecast Revised Down From 359 to 338, Possibly Lower? - 10th Dec 19
What UK Economy (Average Earnings) Predicts for General Election Results 2019 - 10th Dec 19
Labour vs Tory Manifesto's UK General Election Parliamentary Seats Forecast 2019 - 10th Dec 19
Lumber is about to rally and how to play it with this ETF - 10th Dec 19
Social Mood and Leaders Impact on General Election Forecast 2019 - 9th Dec 19
Long-term Potential for Gold Remains Strong! - 9th Dec 19
Stock and Financial Markets Review - 9th Dec 19
Labour / Tory Manifesto's Impact on UK General Election Seats Forecast 2019 - 9th Dec 19
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19

Market Oracle FREE Newsletter

UK General Election Forecast 2019

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