It has been months since my last update on the market situation. And during this periods, while people is wondering on the worsen economy, there are certain stock market index which has rebounded quietly by as high as 45%!. why is that so?
Look at the index tracking that i have done so far to the US DJ, HK HSI, China SH Comp, China ‘H’ share and Taiwan Taiex. This market started to correct since Oct’07, which is 1 year 4 months ago and reached their lowest in somewhere late Oct’08 (except DJ). And they have respectively rebounded by the range of 15% – 45% since then while DJ continue their downtrend by another 10%. During these period after the Oct’08, unemployment hit highest in US, housing price recorded the new low, export drop dramatically and DJ hit the 12 years low, but those market in Great China Kingdom has surprisingly rebounded, steadily stay above the lowest for more than 4 months. You may say the economy challenge has yet to reach Great China Kingdom; if that is the case, can anyone explain why is China SH Comp corrected by 70%, China ‘H’ share corrected by 75%, HSI corrected by 65% and Taiex nearly 60%? more serious than US who is the origin of this crisis?
The export in Asia may be impacted, unemployment rate will hit them as well and there will be more lay off to come as expected. Housing price may be corrected, product sales will drop and the car sales rise happened in China could be just short-lived. But to me, this could be a turning point to Asia region leading by China. With the more solid and healthier financial system, with the much lower default (hitting the historical low in fact), with the higher bank reserve requirement, i would say that this crisis is not going to hit the financial system of China badly. As at late last year, the national debt in china is at 22% of GDP compare with 71% and 67% for US and Euro country. Generally with the lower borrowing by Chinese resident and company, relatively lower GDP per capita could be a good news that the rise of the unemployment rate will not badly impact the China economy. Furthermore with the 4 Trillion Renminbi stimulus package to boost up the country infrastructure and thus creating more jobs to Chinese will boost up the domestic consumption from the bottom of consumer sector as a chain effect to manufacturing, construction, electrical and then to bigger item like cars and house. That is what i see China differently than US and European who are busy helping the big ‘giant’ clearing the debt. Back in 2007, when US is ‘enjoying’ the overheat economy, China has taken action to increase interest rate by 7 times, increase the bank reserve requirement to stop the money from flowing to the economy and share market. And now with the higher interest rate, biggest foreign reserve of 1.9 Trillion USD, they are flexible to come out more monetary policy to boost up the spending and economy fundamental.
However, if we step back to see the bigger picture, look for medium to long term, no matter what will happen in near term, if we are to login to the China market now, you should have big confidence on him. With the GDP per capita of 2,460 USD/ year in year 07, capturing annual growth of more than 13% per year since 2000, the 1.3 Billion Chinese will become rich sooner or later. This has been driven by the urbanisation that happen dramatically in China. According to United Nations Population Division, China urbanisation has increased from 27.4% in 1990 to 40.5% in 2005. And by 2007, because of the increase of the GDP per capita, China domestic consumption has become the main contributor to the China GDP than the other two region; investment and export. And bear in mind that China is the world second biggest exporter. These has driven China to replace Germany as the world 3rd biggest economy and will soon to replace Japan as second. Can you imagine the statistic when China capture 50% urbanisation with GDP per capita overshoot 5K USD/ year? And we do not have to wait too long for that, say 15 years? China will not just a good manufacturer, but he will become a good consumer to drive the whole economy in Asia. It is just the matter of time. If, you are investing now, for medium term of 3 years to long term of 20-30 years, you are going to enjoy the high yield. Not to say comparing with the FD rate of 2.5%.
To invest in Great China Kingdom, Public Mutual launch Public China Select Fund with 25cents and drop to 11 cents in late Oct’08 when respective China and HK market hit their lowest there. This funds invest 98% to China, HK and Taiwan. And when those markets rebound, i have investors who are enjoying 20% return from PCSF which is at 13 cents now.
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