U.S. SEC Calls China as Last Lifeline for U.S. Equities

Tuesday, January 29, 2008 20:49
Posted in category The Big Picture
Comments Off on U.S. SEC Calls China as Last Lifeline for U.S. Equities

Still obviously a minute before the flood of cash is released onto the market, it appears that U.S. and Chinese sides have hatched a plan that will allow Chinese investors to get into US equities through some China based mutual funds.

For years, people in China have been talking about when the great Chinese buying spree will happen. There was talk about Lenovo sized deals occuring on a regular basis, and there are plently of people who have been positioning themselves for when it happens.

But, now with the USD at its lowest of lows, and our asset prices (real estate and stocks) also down, it looks more and more like the time is approaching, and a WSJ article entitled Chinese Investors to See More Ways to U.S. Funds gives us a peak into how Chinese investment could potentially provide a HUGE boost to the US equity markets:

In the latest move to give Chinese investors access to the U.S. market, the U.S. Securities and Exchange Commission is expected to sign a memorandum of understanding in the next several days with the China Banking Regulatory Commission that will allow banks in China to develop U.S. stock mutual funds for their clients

The article goes on to debate the QDII program a bit from both ways, but where I put my money is that the Chinese will invest in a product that reduces their risk to the Chinese economy. Many people fail to understand the memories of the 55s here, and I think that will lead a large number of retail investors to use these as channels of risk diversification.

Of course, that will all depend on how well the funds are structured, and what will be really interesting to see is what the short term impact would be on the markets here, and its effect on releasing some of the tension in the China asset bubble.

Anyone have some insight into this? Would this provide a short term pop on the NYSE/ NASDAQ? What are the risks for the markets in China / HK should money flow faster than expected (herd mentality is a fairly proven pattern in China).

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