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FUNDAMENTAL ANALYSIS

The Yuan, and China’s Growth Path to Internationalization

The Yuan, China’s Growth, Path to Internationalization, Fundamental Analysis, China’s Economy, Stock Market, fx trader, forex

27 Jul 2015

The Slowdown of China’s Economy

Believe it or not, the stock markets of the world’s emerging economies are closely bound to economic growth of China, which currently stands as the world’s 2nd largest economy, even though a slowdown is seen in China’s economy, with the 1st quarter growth of 2015 seeing its worst growth since 1992, apart from 2009. Analysts are expecting to see growth around 7% this year – being the slowest pace in a quarter of a century. The growth yardstick was measured in terms of lower commodity prices, lower rail freight flows, and lower electricity consumption.

 

The Yuan, China’s Growth, Path to Internationalization, Fundamental Analysis, China’s Economy, Stock Market, fx trader, Chinese stocks decouple

Figure 1. Sourse: Thomson Reuthers Datastream

 

A Soaring Stock Market

China’s domestic stock market however moved north, while data showed that the economy headed south.

The Yuan, China’s Growth, Path to Internationalization, Fundamental Analysis, China’s Economy, Stock Market, fx trader, forexFigure 2. Sourse: Thomson Reuthers Datastream

 

There were many factors that gave rise to the bull market:

- First, per capita savings to stock market was relatively low comparable to many major developed economies.

- Second, fiscal stimulus and government expenditure that sustain specific government-supported industries and inspire banks to lend to businesses rose to 2.6% in May 2015, slowing sharply from a 33.2% sharp rise in April 2015, and making the first five months of 2015 seeing a 11.1% rise in fiscal expenditures from a year ago.

- Third, other than industries that could attract government funding or injections, most entrepreneurs or existing business owners are inspired to start a venture. Fixed asset investment grew at its slowest in nearly 15 years in May 2015, missing expectations even as growth in retail sales and factory output steadied.

- Fourth, despite the fact that the property market has been lackluster after the government took measures to curb over-speculation, there was some recovery seen in May.

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