Ross Naylor's Column

Ross Naylor is the Senior Financial Planner for AES International(Poland), an independent, international financial advisory group. Ross has lived in Warsaw since 2000 where he has settled with his wife and family and has over 15 years experience in the financial services industry.

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Previous Columns

Ensuring your insurance
2011-12-17

How To Invest In Gold
2011-12-10

An Investment Lesson from Michael Schumacher
2011-11-26

Are ETFs Safe?
2011-11-19

Why make a will?
2011-11-05

That Old Chestnut
2011-10-01

What exactly is Quantitative Easing?
2011-09-09

One simple question
2011-08-27

Going Green
2011-08-06

The 26 Documents You Will Need Before You Die
2011-07-23

Von Bismarck's Logic
2011-07-16

New Year’s Resolutions Revisited
2011-07-02

How Do They Do It?
2011-06-04

NICs For UK Expats – The Facts
2011-05-21

Sign of the Times
2011-05-14

Is the Commodity Rally Really Over or is Goldman Sachs Simply Doing What it Does Best?
2011-04-30

The issue of insurance
2011-04-15

5 questions to ask your financial adviser
2011-03-19

The Properties of Gold
2011-03-05

Risk? Just think twice...
2011-02-19

The Next Bric Thing
2011-02-05

Inflation Defying Investments
2011-01-29

Up, up and away…
2011-01-21

How much will university cost me?
2010-10-01

3 ways to fund college/university costs
2010-09-24

Scattered thoughts
2010-09-17

From the horse's mouth
2010-08-20

What is your definition of financial freedom?
2010-08-06

4 cheers for gold
2010-07-30

4 Issues Facing China in the Year of the Dragon

Saturday 4th February, 2012

Despite China’s rise to global superpower status, its stock market has massively underperformed its BRIC peers in the 10 years since the acronym was coined.

In that time, the Brazilian stock market is up 350%, India has risen 388% and Russia is up 627%. China? China is up only 25% over the decade, having fallen by 24% in 2011.

As we enter the year of the dragon, here are four issues that partly explain this underperformance and that investors should be aware of when considering allocation to China.

Ownership & Governance

Many large companies in China are state-owned. This makes the market less attractive for foreign investors as returning value to investors and shareholder rights are not necessarily the major priorities for state-owned companies.

Instead, the state places bigger emphasis on employment levels and overall GDP growth.

The Currency

The Chinese currency (Renminbi) is heavily controlled by the government. However, recently announced news that they plan to make London a trading hub for the currency should be positive for Chinese stocks in general as it will boost trading in the Renminbi.

Excess Liquidity

In 2008, China introduced a very large stimulus package as a result of the global financial crisis. This ultimately contributed to rising inflation.

As a result the Chinese authorities implemented a tightening policy last year to reduce liquidity and inflation. This is one of the factors that had a negative impact on Chinese stocks in 2011.

This action appears to have been successful in reducing inflation and it is expected that policy will now revert to a more normal stance.

Hard or soft landing

This is the big one. Is the Chinese economy headed for a hard or soft landing?

Chinese GDP growth has fallen but it is still strong. In addition the Chinese government has significant financial fire power in reserve to help the economy, should it be required.

This makes a soft landing the more likely option.

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