5 Underlying Forces of the China Stock Market Bull Run


When the stock market has an ongoing capital activity, there is always a fundamental strength that drives and keeps the index at the highest levels. Chinese stocks have been hot since 2005 when the bull returned. The key forces that propel the Chinese stock market for the next decade are the following:

1. Intense Reminbi Introduction

 Following the Chinese government's decision to release the Reminbi peg against the dollar 5 years ago, the low-level currency continued to appear at a steady pace. As recently as late 2007, both the U.S. government and the European Union have strongly suggested that this type of currency be used aggressively. The U.S. seeks a weaker currency so that the balance of trade balance can return to normal and reduce the threat to the recession. Euro Dollar value compared to U.S. The dollar over the past few years has been faster than Reminbi. They want China to keep pace so that their export prices remain attractive to EU trading partners. The Chinese government has finally decided to allow markets and their trading partners to fulfill their wish, at least in part. Reminbi awareness will grow rapidly from 2008. This is also a tool of the Chinese government, which is using the situation to curb the pressure of rising inflation. Solid money can help buy foreign commodities such as oil, iron ore and U.S. agricultural sales. at low prices, which is why it can reduce the basic cost of the Chinese consumer market. Informal style, another Dollar bet to Reminbi conversion of Rmb 6.00 at the end of 2009, attracts large amounts of foreign currency in the local financial markets. With so much money in the market being promoted by these foreign investment companies, the Chinese stock market is firmly based on its long-term performance.

2. Strong GDP Growth

 China's GDP growth is estimated at 10% over the past 10 years compared to 3% to 5% in developed western countries. This is because of the open door economic policy that was announced almost 20 years ago, which led the country in the developing world at present as the world's largest manufacturing base. Most of the large state-owned companies went through a restructuring and IPO in Hong Kong and the Chinese stock markets. With so much money in hand, these Chinese companies are able to push for the development of their industry structure and as a result are exported without quality goods. This will significantly increase exports in the coming decades. Investors see their future and bet on their bases. The hope of these shareholders is a real expectation of strong growth in many sectors, especially natural resources, finance, communications, and ecosystems.

3. New Accounting Principles from April 2022

 With the new Accounting Principles, the assets of a company are measured at the market value of dollars. Those assets that may not be accounted for or calculated at the historical cost of the acquisition suddenly became unusually large on the balance sheet. This increases the stock price of these companies as the price over the total asset price decreases. And more importantly, these high value assets are co-financing vehicles, pushing for overseas business acquisitions and expanding internal finance to manufacturing facilities or service delivery infrastructure.

4. New Tax Policy -

 Combination of 2 programs The basic tax rate for domestic and foreign funded businesses is 33%. But for foreign businesses in specialized areas discounted prices were 24% or 15%. Local companies with low profits are required to pay 27% or 18%. As the WTO transition period comes to an end. These different levels now need to be integrated to create a favorable business environment for tax suspension and fair market competition. As of January 1, 2008, the Chinese government adopted a new Tax Policy to apply the same tax rates to both foreign and domestic companies. Of the more than 1,000 companies listed in A-share markets in Shanghai and Shenzhen, a positive decline in the previous 31% to 25% of the combined rate with the new policy, the after-tax profit will increase significantly. As revenue per share increases, lower PE rates will have a greater impact on capital feeling for consumers.

5. Major International Events 

At the China Olympics 2008 has been attracting a lot of international attention and business opportunities in China, especially the Capital - Beijing. Like many previous games, developing countries will benefit greatly from tourism, advertising, advertising earnings, FDI and business growth. After the Beijing Olympics, Shanghai hosted the 2010 World Exhibition. International companies aim to expand their business presence to the top with this 6-month event. Guangzhou and Shenzhen are participating in and preparing for the 16th Asian Games 2010 and 26th Summer Universiade respectively. These major sporting and business events help to shape China's better economic situation over the next decade. This enhances the positive investment climate in Chinese stocks.

If investing in stocks is a game of chance, I think the 5 key strengths mentioned here can definitely reassure investors of the high levels of investment in your Chinese stocks. But be aware that we still need to separate bad companies from quality stock, this will greatly reduce the risk of investment and increase your profits. All good if you decide to take hot Chinese shares.


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