Yuan appreciation might produce a bull market
Updated: 2006-08-23 16:01
Assistant general manager of the Guosen Securities He Chengying recently
published an article in the Shanghai Securities Journal, saying that the
tendency of the Renminbi appreciation over a long term might boost a relatively
large bull market, and therefore it is necessary to analyze the impact of
Renminbi revaluation on China's securities market from a strategic point of
view.
He says that for a long time to come, as long as people keep a steady
expectation for the Renminbi appreciation, international capital will keep
flowing into China's securities market. Its influence to the securities market
will be larger than economic growth or company's business performance, and it
will become a strong driving force to push up the securities market.
According to He, the real impetus for the Chinese stock market now is the
appreciation of Renminbi. In addition, since there is a oversupply of Renminbi,
and other relative markets' attractions to Renminbi depreciation, we can expect
that in the two to three years to come, China's securities market might have a
good performance. During this period, China's currency exchange regime process
might become a decisive factor to determine the rate and the speed of increase
in the securities market. The exchange regime process will highly determine how
much foreign capital will flow into the Chinese market.
Since the impact of Renminbi to stock index depends on its rate of increase,
Equilibrium Real Exchange Rate should be the key point in the issue. Taking
various factors into consideration, it is believed that the Renminbi is
underestimated by 20% from its current value. It is expected that the Renminbi
is revalued by 4% every year and based on compound interest calculation, it is
expected that the Renminbi can rise for five years to come. During this period,
the stock market might have three year's of bull market and two years for
adjustment. When Renminbi is revalued by 18%, stock index will reach the highest
point. The Shanghai stock index can then reach 6,900 points. Considering other
factors, such as the ongoing stock reform, Shanghai stock index might touch
7,000 points. However, it should be noted that the ever-increasing stock market
expansion will cause a negative effect to the rise of the
index.
(For more biz stories, please visit Industry Updates)
|
