Investors welcome China's market moves

The country may expand some programs that allow foreigners to trade. Is it a sign that Beijing wants stocks to go up?

By Jim J. Jubak Jan 15, 2013 1:34PM
Image: China (Digital Vision Ltd./SuperStock)Stocks on China's three markets rallied this week after the head of the China Security Regulatory Commission said the country could increase by 10-fold two programs that allow foreign investors to buy stocks and bonds on mainland markets. 

As you might imagine, investors and traders in China took this as a sign that the Beijing government wants stocks to go up.

Hong Kong's Hang Seng index was up 0.6% on the news but the bigger jumps took place in Shanghai, where the Shanghai Composite Index climbed 3.1%, and Shenzhen, where the Shenzhen Composite rose 3.3%. The Shanghai Composite Index rose 18% from the low on Dec. 3. 

The biggest winners were brokerage, banks, and property developers. For example, shares of Citic Securities, China's biggest brokerage, climbed 6.2% in Hong Kong and 6.9% in Shanghai.

Expanding the amount that foreign investors could invest in mainland markets would require raising the quotas in the Renminbi Qualified Foreign Institutional Investors and the Qualified Foreign Institutional Investors programs. The first allows yuan held offshore in Hong Kong to be invested in mainland markets; the second allows foreigners to buy yuan-denominated stocks and bonds. Since 2003 to Nov. 30, 2012, China's regulators have approved a combined quota of $36.04 billion.

Expanding these quotas would go along with other recent steps to increase foreign ownership of mainland stocks and bonds (and to prop up slumping equity markets.) In December, the government removed the ceiling on investments by overseas sovereign wealth funds and central banks.

On Monday, trading volumes on the Shanghai Composite were 38% higher than the 30-day average. The stocks in the index trade at 12.8 times trailing 12-month reported earnings. The seven-year average for the index, according to Bloomberg, is 21.4 times reported earnings.

Jim JubakAt the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 

Jan 15, 2013 4:46PM
Huh? We just watched someone plop a lump sum on the Blue Chips to keep them in the green. What value are the exchanges if they are rigged? Who gives a crap what China does. They failed to raise a basic economic stability, opting instead to reward a few and bolster corruption. Is anyone hiring back former personnel yet to make the business function again? A minority appears to believe they are in absolute power. The financial sector is a dinosaur awaiting extinction. If you're in it, you might want to reconsider really really really soon.
Jan 15, 2013 6:09PM

"NEW YORK (AP) - Stocks edged higher on Wall Street after a rally in retail stocks offset concerns about flaring tensions in Washington over increasing the country's borrowing limit."


American retail is dead. The stores are filled with Clearance Racks and Cashiers... no customers. A "rally" is apparently "code" for desperate attempt to keep something up that died a long time ago. No wonder the gun fanatics and NRA are on their hind legs and all tightassed... the tab is due and there are no more indentured consumers to pay it. Don't look now, but a balk on the Debt Ceiling increase and Credit Downgrade means wealth will be writing checks. Since they are "all in" this rigged gambit, the shares will be liquidating o'plenty. What's in your wallet? Bet it's not.

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