Introduction
China’s booming economy has undeniably been attractive to many investors and is still inviting to many due to its stable financial position in the global market. Morgan Stanley is certain to see China as one of the most prosperous countries with a population of around 20 billion in 2027 (Davies, 2017). The company believes that debt in China is controlled, compared to the US dollar after Donald Trump has taken up the presidency.
Analysis of Chinese GDP
The growth in Chinese GDP has amounted to 7.3% in 2014 with 64397400000000 (constant LUC), the highest GDP in the history of China. The steady growth in China has mainly been due to the following factors: decline in overcapacity, deregulation in industrial sectors and other economic sectors working under capacity, government policies to set the money rotation within the economy, rising demand for Chinese products among foreigners, and reforms in fiscal policy.
However, in 2015, GDP growth declined due to decisions by the central committee of China in a meeting held in October 2014. The government has shifted its attention toward the social benefits of the public (Curran, 2017). For that purpose, the government took steps to depreciate the currency to increase exports, open stock markets for individual foreign investors by linking the Shanghai stock exchange with the Hong Kong stock exchange (Borzykowski, 2015; Jain, 2014), ease the monitory policy, and increase the income level, etc. The GDP in 2015 was 22,464 ($100 million) with a growth of 2.4%; in comparison, the GDP in 2016 was 23,586 ($100 million) with a decreasing rate of 1.9% (Chunxin, 2017). As mentioned earlier, China has introduced social reform policy and, for that purpose, reduced the consumer price index (CPI) from 3% in 2015 to 2.4% in 2016 (Chunxin, 2017). Moreover, the nominal income of Chinese persons has risen by 8.4%, or 6.3% after adjustment for inflation (Chunxin, 2017). This upsurge in income level has increased local investment, buying power that directly or indirectly supports the other economic sectors.
Prospects for investors in the Chinese market
These policymakers have cleverly worked upon their financial support system, which is their savings; this has been their strong asset. Investors can enjoy a safe ride with a stable index rate after their investment in China. Looking at the past track record, China has provided a great opportunity to investors in raising their income status.
However, there are many aspects that global investors often fail to comprehend, which include price development and the code of practice on the Chinese market. Everyone wants safe play, and China offers the best panorama for investors. China is close to achieving a position as the third country to show the highest prospects despite its high population, after South Korea and Poland (Davies, 2017). It has become a threat to US markets, especially after the elections held in 2017.
Turmoil in the international market has been noted recently, but surprisingly, no impact has been seen in China’s equity market, evidence of economic expansion in China. Since the dollar is losing its stability in the market, this is providing China with favorable conditions for its flourishing economy.
Analysis of Shanghai and New York stock indexes
Soon, the Chinese economy will also govern the economy of Hong Kong, which will be another great achievement on behalf of China. Besides Hong Kong, several other countries are facing volatile stock exchanges. China has become a big challenge for the Europeans, due to the massive investment programs with which China has achieved the maximum equity returns in the following year.
Figure 1 shows the Shanghai stock index from January 2010 to December 2016, indicating the performance of the stock index over the years. The movement from 2010 to 2014 is small and mainly shows a downward trend. Since November 2014, the linkage between the Shanghai stock exchange and the Hong Kong stock exchange has allowed individual foreign investors to buy shares of Chinese companies. This action caused an upsurge in which the stock index crossed the 5000 index point. Later, in June 2015, a drastic decline in the stock index created panic in local and foreign investors (Lee, 2017). Researchers and financial analysts had predicted this crash and warned investors to avoid investing in the Chinese stock market. They further argued that the rise in the stock index is due to momentum rather fundamental factors (Allen, 2015). As a result, 1,300 companies have suspended shares trading and feared that the shock might spill over into other markets (Allen, 2015).
The Shanghai stock market did suffer a few severe losses, and the investors were also taken aback by these shocks, but China’s equity market was able to retain its position, a relief for investors. However, investors are sure to gain profits in the Chinese market in the next decade as well. Trading contracts between China and other countries have won China a stable position in the market.
Figure 2 shows the New York stock exchange, indicating the stock index from 2010 to 2016. In contrast to the Shanghai stock index, the New York stock index is sending a positive signal to investors. The New York stock index has continuously risen except in December 2011 and March 2015.
Conclusion
In summary, Chinese economic indicators are eye-catching, but investors must focus on the expected rate of return. The Shanghai stock index is facing complications due to several reasons, whereas the New York stock index has been performing well since 2010. These findings confirm that investors should buy the shares listed on the New York stock exchange for better returns.
References
Allen, K. (2015). Why is China’s stock market in crisis? The Guardian. Web.
Borzykowski , B. (2015). Shanghai’s stock market is now open to foreigners. Should you buy in? Canadian Business. Web.
Chunxin, W. (2017). Four New Trends of China’s Economic Developments in 2017. Web.
Curran, E. (2017). China Will Avoid a Bank Crisis, Reach High Income Status: Morgan Stanley. Bloomberg. Web.
Davies, W. (2017). Morgan Stanley Sees a Bright Decade for China Stocks. Bloomberg. Web.
Jain, S. (2014). Chinese stock market is opening up to foreign investment. Web.
Lee, J. (2017). Panic Over China Is So Last Year, With Market Swings Subsiding. Bloomberg. Web.
New York composit index. (2017). Web.
Shanghai stock exchange. (2017). Web.