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Big news from China...What is impact on USA stock market?
Old 05-14-2007, 02:42 AM   #1
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Big news from China...What is impact on USA stock market?

China allows banks to buy overseas stocks
By Zhang Ran in Beijing and Hui Ching-hoo and Joy Lu in Hong Kong (China Daily)
Updated: 2007-05-12 05:53


China's commercial banks will soon be able to invest in overseas stocks with funds managed on behalf of their clients.

The China Banking Regulatory Commission (CBRC) gave the official go-ahead on Friday to allow commercial banks, holding the qualified domestic institutional investor certificates, or QDII s, to issue wealth management products that invest in overseas stocks.

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A bank will be allowed to invest no more than 50 percent of a single wealth management product in foreign stocks. Banks are also barred from investing more than 5 percent of a wealth management product in a single stock, the financial regulator said in a rule posted on its website on Friday.

Banks are also forbidden from using their own money in such investments, the financial regulator said.

"The expansion of the investment scope of the QDII scheme will be a win-win measure that will benefit both the mainland and Hong Kong financial markets," said Joseph Yam, Hong Kong Monetary Authority's chief executive .

"The move will certainly meet the mainlanders' growing appetite for overseas investments," said Lai Wai-shing, an independent stock analyst. "Hong Kong, meanwhile, will receive a boost as a regional financial center."

QDIIs will likely first be made available to Hong Kong-listed equity funds, which currently number more than 2,000.

QDII operators on the mainland are inexperienced with overseas equity investment, making equity funds a good starting point for QDII expansion, Lai said.

Strong interest is also expected in mainland shares listed in Hong Kong. Because of the A-share market surge, H shares also listed on the mainland are selling at a comparative discount.

QDII expansion will be gradual, said Ronald Wan Ten-lap, managing director and head of investment banking at Bank of Communications Securities.

"The fanatic A-share rally will keep the mainland capital from flowing out too quickly," he said.

Though H shares will probably close their price gap with A shares , "it's unlikely to move the Hong Kong market as a whole", Wan said.

The Chinese government launched the QDII program last April to allow commercial banks and fund management firms to make overseas investment on behalf of their clients. The program is expected to reduce foreign exchange reserve pressures.

The response has been poor so far - just 3 percent of the $13 billion in QDII quotas have been used.

This is largely because banks are allowed to invest in fixed-income or money market products, but not equities. With the yuan growing in value against greenback and the soaring A-share market, the limited returns offered by QDII products lack appeal.

http://www.chinadaily.com.cn/bizchin...ent_871026.htm

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Re: Big news from China...What is impact on USA stock market?
Old 05-14-2007, 03:16 AM   #2
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Re: Big news from China...What is impact on USA stock market?

China's GDP is less than 1/4 of the USA... a little less than Germany. Still some of that money flowing into our stock market would be a nice boost.


China's GDP growth is red hot. Not sure that growth that hot is healthy ... certainly not sustainable over time.
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Re: Big news from China...What is impact on USA stock market?
Old 05-14-2007, 10:03 AM   #3
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Re: Big news from China...What is impact on USA stock market?

Quote:
Originally Posted by chinaco
China's GDP is less than 1/4 of the USA... a little less than Germany. Still some of that money flowing into our stock market would be a nice boost.
The CIA world factbook says China is Number 2 at ~$10 trillion PPP GDP, behind only the USA at $13 trillion PPP GDP.

Germany clocks in at $2.6 trillion PPP GDP.
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Re: Big news from China...What is impact on USA stock market?
Old 05-14-2007, 10:15 AM   #4
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Re: Big news from China...What is impact on USA stock market?

It is important to understand the difference between NOMINAL GDP and PPP GDP. In terms of NOMINAL GDP, China has indeed only a 2.6 trillion dollar economy. However, if you apply the PPP adjustment, then China's economy jumps to 10 Trillion. Which one is correct? Both or none, depending of which economist you listen to.
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Re: Big news from China...What is impact on USA stock market?
Old 05-14-2007, 10:35 AM   #5
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Re: Big news from China...What is impact on USA stock market?

Good point camberiu. I guess the nominal GDP might be more appropriate when discussing China's potential influence on the US market if they start snapping up securities. However I wonder what the influence of a strengthening yuan (which many assume to be artificially weakened by the chinese govt) would be on investment flows btw china and the US.
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