China’s Internal Financial Investigation ~ Good, or Bad?

Shanghai index
Shanghai Stock Market Index at 5 Years Chart

Chinese market is well known as the world’s second largest economy. Its Shanghai stock market is mostly watched by concerned investors and analysts.  Since June 8, 2015, the index fell from the peak of 5,166.35. Ever since then, many analysts predicted there would be a hard landing crisis. But on January 25, 2016, it has touched bottom at 2,737.60. After that day, it has been slowly climbing into a bull market. This has given investors a sign of relief and glimmer of hope.

However, when it reached 3,288.97 points on April 11, 2017, the authority started to investigate some financial irregularities. Shanghai stock market index fell back down again. This down fall lasted for a month. The index reading went as low as 3,052.76 on May 10, 2017, almost came close to the previous low before the rebound from the bottom. And then everyone was relieved, because they saw the market was crawling up again. It meant the investigation has come to an end. What makes investors even more excited was that the Chinese stock market finally succeeded entering the MISC Emerging Market Index family on June 20. This move was expected to attract billions US dollar foreign investment. On the second day, Shanghai market index rose from previous day close of 3,140.01 points to the close at 3,156.21, successfully won over 16.2 points. It was like dancing at a feast.

Shanghai index after MISC
Shanghai Stock market 5 days performance after entering MISC index

However, on the next day, the authority appeared again to investigate companies that involved in large-scale investment overseas.  The stock market immediately responded with turning back down, fell to close at 3,147.45 points, with a total loss of 8.76 points. Investors might have been really disappointed. On the following day, the market opened low and remained low. But just before market closed, there appeared somewhere an inexplicable support, the stock market went back up and closed with a winning of 10.4 points. It has not only recovered the previous day lost, but with beautiful surpluses. That was history happened at the weekend of June 23 last Friday.

Today, the Monday market opened high and closed higher.  It was like nothing has happened about the investigation. Investors were caught puzzling …  Why was there a down turned happened during the previous investigation and there was as if nothing has happened for this round?  What has actually happened? Does internal financial investigation really cause good outcome or bad outcome?

This point of view on whether good or bad,  perhaps, depends  on  the personal perspective. From the short-term speculative perspective, this is a bad move. But from the long-term investment perspective, this is a good move. The internal investigation will  in fact purify the operation of Chinese financial system and stock markets.  This will enhance long term health for the financial system.

Perhaps for the first round of investigation, Shanghai stock market fell, because it was considered a bad move from mainland investors. But at this round of investigation, there were more foreign participation due to the event after entering MISC. The number of foreign buyers outnumbered those domestic sellers. If this is true, China’s Shanghai stock market would have entered a promising bull market track. Once China has chartered into the long-term bull market, it will lift up those surrounding markets like Southeast Asia, Asia as a whole, and emerging markets collectively. China stock market also possesses a huge potential for the future rise. Because its current stock market PE is quite under value.

Recommended China Related Unit Trust Investments
Mutual Trust Fund with China Market Investment

The easiest and safest way of investment into Chinese market is investment through mutual trust funds. Mutual funds worth our consideration are Pacific Focus China Fund, RHB Big Cap China Enterprise Fund, Manulife China Equity Fund and so on. Those that include the Chinese market as part of the investment parcel can also be taken into account. These are such as Eastspring Invest Dinastic Equity, CIMB-Principal Greater China Equity, and so on.

Recommended China Investments with Cushion
China Investment that Includes other Potential Economies

You might have noticed that the Chinese stock market is an unpredictably volatile. In its past performance, it rose very fast, and backed down very fast as well. It takes a good stomach to swallow all along. After all, we all recognize that the Chinese market is not a healthy open market. Its transparency often makes people feel unsatisfying. In that case, you may want to consider funds that mixed with other emerging markets like India or Indonesia, such as RHB China India Dynamic Growth Fund, or CIMB-Principal China India Indonesia Equity etc.

In this way, you will not only reduce the risk of investing solely into Chinese market, but also to maintain a considerable growth opportunity. When China market drops unexpectedly, hopefully India or Indonesia market will continue their upward journeys. Then a cushion effect will be in place. With India and/or Indonesia, these two big potential economies act as cushion, the promise of profit becomes substantial.

It is my aspiration that readers in the near future can enjoy the upcoming trend of the big bull market trend, especially with this promising world’s second largest economy. When it grows, you will benefit from it too.


Disclaimer: The author expresses his view based on his own learning experiences and share for reference only. Readers are advised to use individual assessment to do investment.



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