Why China’s Stocks Rebound From Biggest Drop in Six Years Today

By Vivian Atud

What: In late morning trade today, China’s benchmark stock index has rebounded from the biggest loss in six years. Shares of various companies went up. Some of the biggest winners of the day include: Great Wall Motor Co. and Qingdao Haier Co. up more than 3 percent to lead a rally for consumer companies most reliant on economic growth. PetroChina Co. surged 4.7 percent, rebounding from yesterday’s 9.2 percent plunge. Losers of this morning trade in China include: Citic Securities Co. and Haitong Securities Co. extended yesterday’s slump, tumbling at least 7 percent on concern regulatory efforts to rein in margin trading will hurt earnings.

Why: Data released by the Chinese government today showed that the nation’s economy grew faster than estimated. This resulted to a 2 percent rise in the Shanghai Composite Index today after a 7.7 percent fall yesterday- its biggest drop since June 2008. The CSI 300 Index climbed 1.4 percent. Hong Kong’s Hang Seng China Enterprises Index (HSCEI) advanced 2.2 percent. The Hang Seng Index added 0.6 percent.

Gross domestic product rose 7.3 percent in the three months ended December, beating the median estimate of 7.2 percent. This economic growth data suggest that stimulus efforts have started to boost demand in China. The central bank cut interest rates for the first time in two years in November and the government accelerated the approval of infrastructure projects to boost an economy mired in a property slump and overcapacity.

So What: Though growth in China is currently slower than it was in the past ten years, data released yesterday shows that there is still significant growth momentum within the Chinese economy. Government Stimulus programs and interest rates cuts have also assisted. However, investors need to continue to look at the long term growth potentials of China. For investors on the JSE, this morning the news out of China will send out positive signals and should boost the JSE as China remains one of South Africa’s biggest trading partner.

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