Are Chinese stock markets coming back?

Cheming Yang

China’s stocks rose in July sending benchmark indexes to their largest monthly gain since December 2012. Chinese stock markets have been in limbo amid the real estate boom in China in recent years. Shanghai Composite Index (SHCOMP) reached the historical high point of 3478.01 in the August of 2009, spiraled down and never regained its full strength ever since.

After the 2008 financial crisis, with the aid of quantitative easing from the US, the real estate bubble in China got blown out of proportion. This bubble attracted most of the capital investment and also drew blood from the stock markets. As such, Chinese stock markets have been pale compared with other stock markets around the world for the past five years or so. But we have seen signs of recovery recently.

SHCOMP rallied 7.5 percent this month amid signs of monetary easing, along with accelerated government spending and gains in manufacturing industries. Amid the enthusiasm, the Shanghai stock exchange and China Securities Depository and Clearing Co. will conduct a test for the stock connect plan with Hong Kong in August. The exchange link with Hong Kong will give foreigners unprecedented access to the $3.5 trillion stock market.

Mark Mobius says it’s not too late to buy into the rally in Chinese stocks. The executive chairman of Templeton Emerging Markets Group predicts the nation’s equity market will climb another 20 percent. “If you look at the valuations of SOEs (State Owned Enterprises), you’ll see that they are very cheap,” said in an interview according to Bloomberg.

Healthy stock markets are essential for enterprises to raise money and for investors to make money from them. Stock buying is not mere gambling but shrewd investment. A rising economy should not have sinking stock markets. Perhaps it is time to stop betting on housing and to enter stock markets.

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