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Growth down, stock index up

Updated: 2014-12-12 20:00
By Xin Zhiming (chinadaily.com.cn)

China’s growth slipped to 7.3 percent in the third quarter, the slowest since the 2008-2009 global financial crisis. More seriously, it is facing multiple challenges, such as a cooling property market, high local government debt levels and falling prices.

The central conference sent an unequivocal message that policymakers are prepared to tackle those difficulties through monetary and fiscal adjustment in accordance with changing economic conditions.

Therefore, although economic growth may continue to dip, the stock market, which has already risen by more than 20 percent in the past two months, may even become looser next year, laying the groundwork for a possible rally.

From the microeconomic perspective, the country will press ahead with its reform agenda and, at the same time, search for new growth engines to anchor the world’s second-largest economy.

The central conference highlighted the importance of supporting the development of key industries, such as infrastructure connectivity, new technologies and industries, agriculture, environmental protection, new energy and health, to bolster the economy. It means China will jetison the traditional way of production and pay more attention to development of a clean and competitive economy that is built on promising emerging industries. The adoption of the new stance will help both stabilize the overall economy and lay a solid foundation for China’s sustainable development in the coming decades.

Given the new stance reflected at the conference, there could be more supporting industry policies next year to implement the central government stance and upgrading China’s industrial structure, an initiative that will usher in rich opportunities for stock market investors.

The market, therefore, may continue to cash in on the expected richness of liquidity and new industry policies next year.

The stock indexes have risen strongly in the past two months, sparking concerns that it may have become overbought and the major corrections last week are interpreted as the end of the strong but short-lived rally.

Those with a short view of the market may be justified if the stock index dances exactly in tune with the GDP growth trend, but actually it is not the case in China. There is often a big gap between their steps.

The possibility is high that the index continues to rise next year after some corrections, although no one is sure where the ceiling is.

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