Published on March 12, 2014
China 2014 Investments Trends: Short or Long Term?
What is BOP? Balance of payment, a definition The Balance of Payments records all the financial transactions between a country and the rest of the world Current account: payments from overseas and payments to overseas by the country Capital account: changes in ownership of assets from country to country Current Account + Capital Account + Direct Investment + Portfolio Investment + Other Investment + Reserve Assets + Errors and Omissions = 0.
BOP of China Before 2012 • Twin surplus • A lot of foreign reserves in order to keep the yuan undervalued • Big inward FDI • Small outward FDI but tend to increase
Current Account 193 Goods Trade Balance 322 Services Trade Balance -90 Investment Income Balance -42 Transfert Balance 4 Capital Account 4 Financial Account -21 Inward FDI 253 Outward FDI -62 FDI Balance 191 Portfolio Investment 48 Other Investment Balance -260 Net errors and omissions -80 Accumulation of reserves -97 Inward and Outward FDI and portfolio investment between 2003 and 2012 Balance of Payment of China in 2012 Source: SAFE 0 500 1 000 1 500 2 000 2 500 3 000 3 500 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Inward FDI Outward FDI Inward Portfolio Investment Outward Portfolio Investment BOP in 2012
WHERE Ft is the forward exchange rate at time t 1+i$, is the dollar return on dollar deposits. It is equal to the dollar return on euro deposits (Ft/St)(1+ic) • Chinese Market higly regulated Inflaction • How the chinese economy take undercontroll it? Real Estate Speculation • Another consequence Currency related risk • WTO pressions • Exportation Based Economy
Short term investment opportunities in China • Portfolio investments, other investments - Shares of local companies - Bonds • Property purchases - For quick resale • Certificates of Deposit - Money in 6 – 12 months in moderate interest rates Types of the short investments:
BOP analysis and how short term investments can foster the growth
• Three Main Opportunities Area: - Real Estate - Shares and Obligations Market - Venture Capital • Real Estate Investments and Real Estate Bubble - Understanding the M2 Index - After 2011 M2 : Real Estate Prices = 1 : 0.64 - Boom and Bubbles at the same time, Ordos vs. Chengdu • Share and Obligation - Diffused Practice of setting up a “Mock” JV to overcame Limitation to B and H shares - Junk Bond Boom - No capital Gain but also no Overhang
• The Venture Capital Market - Excellent NIS with hundred of STIP and HTZ - 3% of SMEs produces 75% of all new patents - Credit Crunch and strict IPO rules - Avg. Technology Cycle of 5 years vs. 10 years USA Avg. • In Short -OFII e Mini QFII as Currency Exit Point -HK as China “Currency” Harbor -Go west Policy results - Only Major Economy Growing by 7,5 % a year
• The Double Digits Days are Over • The Bet of the Domestic Market • Unreliability of the Official Data • Risk of a Major Credit and Real Estate Bubble • Uncertain Development of the Financial Market • Thank you Good People! Any Questions?
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