Is the Chinese Sleeping Giant Awakening?

PUBLISHED: May 13 2014 @ 11:10 | Comments (0) | More info about Lou Gutheil

As long as I can remember (When you are over 65 that can be a very long time. Some days, not very long at all.), the world has always watched China, at least out of the corner of one eye. We always wanted to be ready when the Sleeping Giant awakened. Well, it did awaken, and the world was hardly prepared, despite all the watchfulness. Most recently, we have observed the worldwide impact when the giant slows it pace and decides that it is nap time. Lest we forget, we still need to keep an eye on China. It may be about to reawaken.

Last Friday, 9 May, the Chinese State Council waited for the markets to close before announcing that the government is preparing to institute financial market reforms that are intended to make commodity trading more transparent and to encourage foreign investment. In a separate announcement the Securities Association of China indicated that reform was also coming to the rules governing the issuance of IPOs. This is ought to be eyebrow-raising news, as IPOs have been frozen since 2012 under Chinese market regulations. There is no point revising rules for something that does not exist. Ergo, expect to see a surge of IPOs in China in the near future. Nearly 300 companies have initial prospectuses waiting in limbo in the early stages of the application process.

The Chinese markets have been adrift following a period of massive economic stimulation and growth. While other emerging markets are showing gains, the Shanghai All Ordinary index is down 3% on the year, trailed by the Hang Seng index which is down 4%. The FTSE/Xinhua China 25 Index (FXI) is down 8%.

Some Chinese stocks ticked up in trading yesterday, but many pulled back today on weak economic reports issued by the government today. Industrial production slowed by one-tenth-of-a percent in April. Retail sales slowed by 0.3% despite expectations that both would grow. I don’t think that this is as much of a mixed signal as some may make it out to be. Rather, it is more likely a result of the timing and sequence of the announcements.

The nine items addressed in the Council’s announcement included:

Development of more varieties of commodity futures and options
Reduced restrictions on the use of derivatives for the purpose of risk management
Stronger enforcement regarding false disclosures, insider trading and illegal fund-raising schemes
Creation of a direct bond issuance structure for local municipalities
Increased quotas for foreign investment

In summary, the Council said that “China’s capital markets are still not mature, and some systemic problems still exist. New problems are continually appearing.” The Sleeping Giant is about to reawaken. Rumor is that the Giant is not a morning person, but, once fully awake, its appetite will be bigger than ever.

CLICK HERE TO REGISTER FOR FREE ON ADVFN, the world's leading stocks and shares information website, provides the private investor with all the latest high-tech trading tools and includes live price data streaming, stock quotes and the option to access 'Level 2' data on all of the world's key exchanges (LSE, NYSE, NASDAQ, Euronext etc).

This area of the ADVFN.com site is for independent financial commentary. These blogs are provided by independent authors via a common carrier platform and do not represent the opinions of ADVFN Plc. ADVFN Plc does not monitor, approve, endorse or exert editorial control over these articles and does not therefore accept responsibility for or make any warranties in connection with or recommend that you or any third party rely on such information. The information available at ADVFN.com is for your general information and use and is not intended to address your particular requirements. In particular, the information does not constitute any form of advice or recommendation by ADVFN.COM and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Authors may or may not have positions in stocks that they are discussing but it should be considered very likely that their opinions are aligned with their trading and that they hold positions in companies, forex, commodities and other instruments they discuss.