   |
|||
Chinese Red-chips Soar into Orbit, is Gold Next?By Gary Dorsch 2006 was a year of extreme volatility in the global money markets. Once again, the biggest stock market winners were the emerging giants of Brazil, China, India, and Russia, the so-called BRIC countries. Together, the BRIC account for 50% of the world's population, yet their rapidly growing economies account for only 13% of global economic output. The four emerging markets have been star performers, while European, Japanese and the US markets lag behind their blazing trail. The global economy produced around $36.7 trillion in goods and services in 2006, with emerging economies expanding an average 7% this year, largely as a result of high commodity prices, and booming demand in China and India, the World Bank said. The pace of expansion in emerging economies could remain above 7% in 2007, lead by 9.5% growth in China, 8.5% growth in India, and exceeding the 2.6% average growth rate of high-income countries in Europe, Japan, and the US.
The H-share index is fueled by a 29% annualized increase in industrial profits, and a 17% increase in the Chinese M2 money supply. China's economy is expanding at a 10.4% rate this year, the fourth straight double-digit annual gain. Chinese traders have discounted several more years of double-digit gains for the local economy, with the H-share index eclipsing the psychological 10,000-level on Dec 27th. China's exports grew 32.8% from a year earlier in November to a record $96 billion, while annual import growth stood at 18.3 percent. China is set to run up a $229 billion trade surplus with the US this year, more than 13% greater than the record 2005 surplus. China passed Mexico as the second- largest US trading partner in the first 10 months of this year, only behind Canadian-US trade. Nearly 87% of China's trade surplus is derived from the one-way highway to the US market. China's stock markets went ballistic on Dec 27th, when the China Securities Journal revealed that Beijing plans to set a unified corporate income tax rate of 25%, and will scrap the decade-old preferential tax rate of 12% for foreign firms. The draft law under consideration, if approved by the People's Congress, could be introduced after March 2007. Right now, domestic based companies have the heavier tax burden, and are at a disadvantage when competing with foreign based firms. Chinese banks are currently subject to a statutory 33% income tax rate on top of a 5% business tax. The expected corporate tax reform will enhance the earnings of most domestic banks by between 10% and 20 percent. But Chinese banks are not cheap, and trade at a sector average of 2.5 times their forecast book value in 2007, a 20% premium to the 2.1 average of global emerging market banks.  China is the emerging economic super-power of the 21st century, and has moved into fourth place, ahead of the UK economy, quickly catching up to #3 Germany, but still far behind Japan and the US. Beijing's foreign currency reserves have soared to one trillion dollars, and are on course to reach $1.5 trillion by 2010, with cash inflows expected from foreign trade, foreign direct investment, and interest earned on US and foreign debt. Where will Beijing direct its future FX reserves? Capitalization of the Shanghai Stock Exchange reached 6.3 trillion yuan and the Shenzhen Stock Exchange amounted to 1.7 trillion yuan, making China the largest emerging stock market in the world. China's capital market equals 40% of its GDP, up from 18% in 2005, and has been soaring in leaps and bounds since June, overtaking South Korea and India in market value in the past two months. To read the rest of the article, click on the hyperlink below, http://sirchartsalot.com/article.php?id=47 Gary Dorsch 321gold |
China's
Enterprise H-share Index listed in Hong Kong, wins the gold
medal for market appreciation across the globe in 2006, after
posting a 92% gain so far this year. Most foreign investors interested
in China's companies prefer to trade the H-shares, or mainland
companies that list in Hong Kong or New York, and comply with
international accounting and governance rules.