Opportunities in China stock market

The growth of Chinese stock markets will be pushed by boosting corporate profitability. For example, the consensus in the expected growth in profits in 2010 reached 21%. Already the fourth quarter of this year should show improvement in corporate income. Once investors see that the companies managed to meet high expectations, increase their confidence, as well as exposure to the markets.

In addition to improved profitability, there are two positive factors for Chinese market. These factors are not fundamental but structural.

1.) It is expected that China will allow secondary trading in Shanghai for companies from Hong Kong. Such a SPO (Secondary Initial Offering) enables companies funding in RMB, while the A shares (traded on the domestic Chinese market) could revise relative high valuation.

2.) The second is launching of first ETF at Shanghai stock market, which invests in Chinese companies traded in Hong Kong.

Finally, Chinese authorities could accelerate the approval process for qualified domestic institutional investor (QDII), which could have significant impact on markets.

Despite fears of a tightening monetary policy by the Chinese authorities macroeconomic data are improving, GDP growth outlook in 2010 is 8.5%. The profitability of companies is expected to grow also.