China's equities have hit their lowest level in nearly 33 months with gold and property companies leading the decline. This reflects both global and domestic concerns. At the global level, sentiment has been undermined by the escalating sovereign debt crisis in the Eurozone. In China, fears about inflation, rising interest rates, an overblown property market and non-performing loans in the banking sector have hit confidence.
The benchmark Shanghai Composite Index, which tracks both A and B shares touches 2206.52 briefly, its lowest level since it closed at 2223.73 on March 18, 2009, before trading at 2223.13 now. Most analysts expect the stock market to keep falling in the short term and to end this year near 2200.
We see that consumption growth is still the main driver in China with higher wages leading to more spending power. Consumer demand will become an increasingly important factor in the Chinese economy as the country moves away from a growth model based on exports. On a technical perspective, the index is poised for a rebound if it can close above 2200 level. Investors who want exposure to China can either buy H-shares, ETFs or unit trusts.
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