Summary
After a three-year downturn, the Chinese stock market has roared back to life in the past month, at one point soaring 45% before a bout of profit-taking emerged. Looking ahead, a question arises. Will the rally have legs? Economic trends in China certainly bear watching (closely) and will go a long way toward supporting stock-market momentum. China is now an $18 trillion economy and represents just below 20% of the global economy. Thus, China is a critical contributor to overall global economic growth, even if it “only” grows 4%-5%. In fact, 4% growth in the Chinese economy today adds more to global output than the 10% growth achieved 10 years ago, when China was growing faster but was smaller. The latest rally in the Chinese stock market was kicked off by a series of events. The People’s Bank of China cut interest rates, eased reserve requirements for banks, and reduced the cost of existing mortgages. It also unleashed schemes to provide more capital for institutional investors to buy stocks and for corporations to buy back their own shares. It did not rule out launching a sovereign wealth fund that would be devoted to purchasing local shares. And t
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