The Market Monitor Minding the Nation's Business
By Jerry Maglunog
Many stock markets in the world are booming. This is a sign that many companies are offering publicly their shares. Wherever you look at Nasdaq, London Stock Exchange and Paris Bourse, the trend is an upswing.
With almost all of the bourses on the upswing, nothing is more amazing than the Chinese stock market, which is now valued at over $10 trillion.
The $10 trillion value is the first time for the Chinese bourse, the latest milestone for the nation’s world-leading market.
Companies with a primary listing in China are valued at $10.05 trillion, an increase of $6.7 trillion in 12 months, according to data compiled by various independent sources. “No other stock market has grown as much in dollar terms over a 12-month period,” leading business magazine The Economist said in one of its issues.
The gain alone is more than the $5 trillion size of Japan’s entire stock market. The climb to $10 trillion value made the Chinese bourse get in second place as the US is the biggest globally at almost $25 trillion.
Also in the top 10 of stock market value and capitalization are Hong Kong, $5.22 trillion; Japan, $5.4 trillion; United Kingdom, $3.83 trillion; France, $2.9 trillion; Canada, $2.2 trillion; Germany, $1.92 trillion; Switzerland, $1.22 trillion; and India, $1.5 trillion.
“No other stock market has grown as much in dollar terms over a 12-month period, as Chinese individuals piled into the nation’s equities using borrowed funds to bet gains will continue,” an editorial of China Morning Post reads.
The bourse’s valuations are now also the highest in five years and margin debt has climbed to a record, all while the economy is mired in its weakest expansion since 1990.
Outside of China, investors aren’t showing the same enthusiasm toward the nation’s equities. Funds pulled a net $6.8 billion out of Chinese stock funds in the seven days until June 17, leading equity rate issuer Barclays Plc. said in a research note.
Dual-listed Chinese shares cost more than twice as much on average on mainland exchanges than they do in Hong Kong. Here at home, leading stock market figure Harry Liu said the growth of the Chinese stock market is a sign that the number of its people are now in stocks.
“Market rebounds are always at the mind of those people,” the former Philippine Stock Exchange chairman said.
The Shanghai gauge has rallied 152 per cent in the past 12 months, the most among global benchmark indexes tracked by Bloomberg, and trades at about 26 times reported earnings.
Less than a year ago, the gauge was valued at about 9.6 times, the lowest since at least 1998. The Shenzhen Composite Index, tracking stocks on the smaller of China’s two exchanges, trades at 77 times profits after surging 194 per cent.
Gains have been fueled by speculation the government will take more steps to boost growth.
HSBC Holdings Plc predicts a 50-basis-point cut in lenders’ required reserves in the “coming weeks,” while Societe Generale AG said one more is needed before the end of June. That would be the third reduction this year.
While the latest data showed the economy stabilizing, indicators from retail sales to industrial output are still growing near the slowest pace in years and trade remains weak. Exports slumped in May and imports declined for a seventh month.
Profits in the Chinese gauge trailed analyst estimates by the most in six years in 2014 as economic growth slowed to 7.4 per cent, the slowest pace in more than two decades.
Mainland investors’ fervor for stocks remains undaunted, with a record 4.4 million trading accounts opened in the final week of May, and margin debt on the Shanghai exchange rising to a record 1.44 trillion yuan ($232 billion) on June 11.
At the close of 2012, the size of the world stock market (total market capitalization) was about $55 trillion. By country, the largest market was the United States (about 34 percent), followed by Japan (about six percent) and the United Kingdom (about six percent). This went up more in 2013.
The stock market is one of the most important ways for companies to raise money, along with debt markets which are generally more imposing but do not trade publicly. This allows businesses to be publicly traded, and raise additional financial capital for expansion by selling shares of ownership of the company in a public market.
The liquidity that an exchange affords the investors enables their holders to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as property and other immoveable assets. Some companies actively increase liquidity by trading in their own shares.
History has shown that the price of stocks and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood.
An economy where the stock market is on the rise is considered to be an up-and-coming economy. In fact, the stock market is often considered the primary indicator of a country’s economic strength and development.