The Chinese Stock Market is the largest investor in the world beating off the long dominance of the US and an inferior effort from Japan. Jenifer Carpenter, Fangzouh Lu, and Robert Whitelaw wrote in the article that China is the biggest investor and the largest contributor to the growth of the world’s economy and the trend will persist for a long time. The authors suggested that the growth of the Chinese Stock Market would continue to grow depending on the efficiency of allocation of capital by its financial system (Carpenter, Lu & Whitelaw 3). The stock market of China has also developed informative trends of the profits in the business world in the future just like in the US. As much as the same market is segmented, there are price risks that its investors face, just like in the markets of other big economies of the world. Therefore, this work is a report on the importance of the Chinese Stock Market and its characteristics.
The current status that the stock market of China holds started in 2010 when it became the largest in the world. The report indicates that the market had a total investment of about $ 4.9 trillion in fixed assets in 2014 while the US only had $3.4 trillion and Japan had $ 1.1 trillion (Carpenter, Lu & Whitelaw 3). The authors further reported that since 2007, the Chinese Stock market has been the principal contributor to the expansion of the economy across the world and in 2014, it contributed $ 0.9 trillion. The investment in the Chinese market is twice as large as it is in comparison to the principles of the world economy if the value of its investment is adjusted in terms of purchasing power.
The report also indicated that the Chinese Stock Market trailed only the US and had a market capitalization of about $ 6 trillion in December 2014. The success of the market had followed years of efforts to recover from the crisis that the economy faced in the period between 1990 and 2000 when it gained a reputation as a casino (Carpenter, Lu & Whitelaw 8). Presently, the future of the market relies on the adopted system that will ensure management of wealth and a central regulation of the economy. The largest dominance in the market is the banking sector regulated by the state and the shadow banking segment. In 2012, the overall bank credit in the market was about 128% of the country’s GDP while the shadow banking sector amounted to approximately 90% of the GDP in the same year. On the other hand, the stock capitalization market of the country is about 44% of the GDP (Carpenter, Lu & Whitelaw 5).
The market also gives chances for diversification as well as attractive returns on investment. However, the high alpha potential for foreign investment has the effect of raising the equity costs for domestic firms and the largest gains result from the opening up of the economy to foreign investment. The report, therefore, concluded that the current trend exhibited by the Chinese Stock market will remain for a long time and that the growth and sustainability will depend on the efficiency of capital allocation (Carpenter, Lu & Whitelaw 3). The authors also noted that the high alpha for potential investment will continue to attract foreign investment into the nation resulting from the high expected returns.
Carpenter, Jennifer N., Fangzhou Lu, and Robert Whitelaw. The Real Value of China’s Stock Market. (2014). Internet source.