There are two news items that caught my attention today:
1. Chinese stocks rallied another 3.35% today (Indian stock market Nifty down 1%)
2. Dennis Gartman says China's Bull market has just started.
Chinese stock market is rallying like crazy especially at a time when Chinese economy is dramatically slowing down. Many market watchers are perplexed at the pace of the rally but there is method behind madness. There are fundamental reasons why people are buying Chinese market like crazy.
Here's Shanghai Composite Index
It all started in November 2014 when foreign investors were allowed to buy individual shares of 560 Chinese mainland stocks. A direct link was created between the Hong Kong Stock Exchange and the Shanghai Stock Exchange. This change made it possible for international investors to buy companies that are play on Chinese consumers. That's not all- for first time - Chinese officials gave signals to liberalize controls over its currency and financial markets.
The real Game Changer
There is IMF meeting in October 2015 and for the first time, China has a real shot at getting the International Monetary Fund to endorse the yuan as a global reserve currency alongside the dollar and euro. The Bloomberg reports:
In late 2015, the IMF will conduct its next twice-a-decade review of the basket of currencies its members can count toward their official reserves. Including the yuan in this so-called Special Drawing Rights system would allow the IMF to recognize the ascent of the world’s second-biggest economy
What does this mean?
Central Banks around the world can hold Renminbi (Yuan) assets along with Dollar, Euro, Pound and Yen. This will start new era of integration of Chinese financial markets into the world. Yuan will become more freely tradeable instrument. Chinese weightage in Global indices will rise considering its size of economy. The wind is blowing in direction of reforms and Global investors are positioning themselves in that direction. No wonder Chinese stocks are rallying like crazy because the multi year trend seems to have just started with China's financial market opening up to the world.
The bad news for India: Global investing community's whole focus now is China. I am no expert on China. I am just observer and follower of Global events. The above article is my understanding of Global events. Please do your own due diligence befor making any investment decision.
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers