China's stock exchanges stay on track

While global exchanges were falling sharply during last week, the two Chinese homeland exchanges Shanghai and Shenzen only came under pressure on Tuesday. Shanghai's A-share index still records a plus of 35% compared to January 2006.

Currently, 34 foreign institutional investors have a licence from the Chinese government to invest a total amount of $ 5.6 bln in China's financial markets. Considering a market capitalisation of $ 500 bln this isn't really a major dominance. China's homeland exchanges are still dominated by private investors who are more influenced by market rumours than by fundamentals. This may also explain the large volatility of these markets surging or plunging up to 5% on the same trading day. But some of the rumours are well-founded. A few days before, the Chinese government had announced measures to cool down the economy. So, there is some uncertainty how this will affect the earnings of the companies.

Chinese stock has gained additional momentum by the Chinese currency Yuan which is under a more flexbile currency regime since mid 2005. Last week, the Yuan broke the line of eight Yuan against the US-dollar for the first time. Many investors believe this to be the beginning of a broader development as the Yuan is still considered to be undervalued by up to 40% by currency experts.

Source: Finanz und Wirtschaft

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