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Welcome to Profit Confidential • Tuesday, May 22, 2012

Chinese Trading in 2007

Thursday, May 17th, 2007
By George Leong, B.Comm. for Profit Confidential

Chinese companies are reporting record profits, which are helping to drive buying. The benchmark Shanghai Composite Index (SCI) broke above the psychologically key 4,000-point level in trading and touched a record high of 4,081 on May 14. The break and current bull rally has been somewhat a surprise, especially given that the SCI had fallen below 3,000 during the market correction on February 27. At this point, the SCI is now up an astounding 170% from its 52-week low of 1,512.52. The index is up 50% this year and is well ahead of the 7% gain in the NASDAQ.

 Trading in China is now the largest stock market in Asia. Recent daily trading value of a combined $49 billion on May 9 comprising of $33.2 billion on the SCI and $15.8 billion on the Shenzhen exchange was greater than the rest of Asia combined. Compare this to trading in late 2006 when about $5 billion in trading occurred per day. The second-largest trading region in Asia on May 9 was Japan at $26.9 billion. Compare this to London trading on May 9, which was $29.4 billion, and you’d understand the scope of Chinese trading.

 If you have access to global trading, the following may be of interest to you. China is planning to launch its first financial futures product based on an index of the performance of the 300 largest Shanghai- and Shenzhen-listed A-share companies. The futures product is scheduled to start over the next few months.

 There are expected to be tight restrictions on how much the futures contract can move as regulators are concerned about potential problems. In the mid-1990s, China shut down its derivative markets due to some fraud and manipulation. The availability of futures in the country’s key index is critical, as it will allow for hedging and/or trading strategies.

 The initial public offering (IPO) market in China is also seeing increased activity. This should not be surprising given that the country has many private companies looking at an IPO in order to raise capital and grow.

 But as I said in a previous commentary, major Chinese IPOs are deciding to list in China and Hong Kong rather than list on U.S. exchanges. However, we are expecting to see about 30 smaller Chinese stocks listed on U.S. exchanges this year. If you want some of the bigger issues, you will need to have access to the Hang Seng Exchange in Hong Kong or the SCI.

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Profit Confidential AuthorGeorge is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.

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