Chinese Stocks: This Market Has Big Upside
Potential For 2012!
The Dynamic Wealth Report
January 23, 2012
by Robert Morris, Editor
Back in early December 2011, I wrote an article about Chinese stocks. The
article,
Chinese Stocks Set To Soar In 2012?, explained why these stocks
are poised for big gains this year.
The main reason for my bullish outlook was simply a key shift in Chinese
monetary policy. You see, in late November, the Chinese government
signaled inflation had been defeated and it was time to refocus on
growth.
The signal was delivered by the People's Bank of China.
-------------Sponsor-------------
Where Can You Turn $300 Into $1.3 Million Right Now?
Our own small-company specialist, Robert Morris, has found a
way to 'sniff out' tiny penny stocks on the verge of a major breakout. And
the timing for this has never been better.
You see, the system takes advantage of an obscure SEC regulation that
sends penny stock prices through the roof.
We've seen some stocks gain 852%... 5,450%... even 17,496% in no time
flat.
Click here
for the details...
-----------------------------------
In a surprise move, the PBOC lowered bank reserve ratio requirements for
the first time since 2008. The move effectively increases the amount of
cash banks can lend to individuals and businesses.
Lowering reserve ratio requirements can only boost growth so much. For
the Chinese economy to keep growing at 8% or 9% annually, the government
will have to take further steps to foster growth.
Of course, the next logical step is for the government to start lowering
interest rates. Lower interest rates provide businesses with an
incentive to borrow money needed to fund their growth. And as businesses
spend these funds, it provides a big boost for the economy.
Here's the upshot...
Investors know the lowering of bank reserve ratio requirements is just
the first step in the government's new easy monetary policy. They also
know easy monetary policy can drive stocks higher and higher for years
to come. Armed with this knowledge, investors are sure to begin pouring
money into beaten down Chinese stocks.
Still not convinced?
Here are a three new reasons why investors are poised to move into
Chinese stocks.
Last week, the PBOC injected an eye-popping $56 billion into the
monetary system through reverse-repurchase agreements.
It's the most since Bloomberg began keeping track in early 2008. And it
drove the seven-day repurchase rate, a gauge of funding ability in the
financial system, to the highest level in almost seven months.
I know this sounds complicated. Here's what you need to know.
Last week's reverse repo was an amount close to one reserve-ratio cut. In other words, the PBOC effectively lowered reserve ratio requirements
for Chinese banks once again. Just one more clue the Chinese government
is intent on loosening monetary policy and driving stronger economic
growth.
Also last week, China's State Council announced they're considering a
landmark change.
The agency is reviewing a proposal to allow local pension funds to
invest 10% to 20% of their assets into stocks. This could be another
huge source of inflows into Chinese stocks. According to Reuters, the
new policy could prompt pension funds to invest a whopping $28 billion
into the stock market.
You don't have to be Warren Buffett to understand that inflows of this
kind can drive stock prices higher in a hurry.
A third reason why Chinese stocks are headed higher is solid earnings
growth at Chinese companies. 35 companies in the Shanghai Composite have
reported fourth quarter earnings so far. And the numbers show an average
gain of 19%.
Solid earnings during a period of tighter monetary policy and slowing
GDP growth is sure to attract more investors to Chinese stocks.
If you don't have any exposure to Chinese stocks, now's your chance to
get in at bargain prices. The Shanghai Composite is trading at just 9.5x
estimated earnings. That's very close to the record low P/E of 8.9x hit
on January 6th.
No question about it, Chinese stocks are poised for big gains in 2012. Take a look at some of the larger Chinese companies with ADRs trading on
US exchanges for your own portfolio. Or if you want to lower your risk,
consider investing in a quality Chinese equity ETF like the iShares FTSE
China 25 Index (FXI).
Profitably Yours,
Robert Morris
Share This Story:
Print
Page
Bookmark Us
Home | Whitelist Us |
Terms of Use |
Privacy Policy |
Contact Us | Security |
Site Map