? ?
BIZCHINA / Biz Life
To buy or not to buy?
(CRIENGLISH.com)
Updated: 2007-08-28 17:27
To buy or not to buy, that's the question.
Knowing exactly what you want is the key to making the right decision.
Related readings:
?Survey: Most individual securities investors play small
?Securities dealers vying for brokerage business
?China may loosen forex controls for  the individuals
Mainland residents will be able to directly invest in overseas securities
market. The State Administration of Foreign Exchange has announced a
pilot program, allowing investors to use foreign exchange or purchase
foreign currencies for their overseas investment. The move is set to open
a new channel for the outflow of China's enormous saving deposits and
help relieve pressure on the country's mounting foreign reserves.
Under a pilot program to be launched in the northern city of Tianjin,
mainland residents can use foreign exchange or purchase foreign
currencies, with which to open an account with the Bank of China's
Tianjin branch.
At the initial stage, investors can buy shares on the Hong Kong stock
market.
As a bonus, they won't be subject to a rule that limits foreign-exchange
purchases to 50,000 US dollars annually.
Researcher Yi Xianrong says this is an important measure to widen the
channel for foreign exchange outflows.
"If people can invest overseas, it will increase their investment
channels and alleviate pressure brought about by a fast growing foreign
reserve. The move is an important step in fully opening up China's
capital account. It shows China's foreign exchange reform is moving
forward step by step."
China previously put restrictions on cross-border outflows of capital by
companies and individuals, to prevent economic instability brought about
by large-scale money flows.
But the country's foreign reserve has now surpassed 1.3 trillion US
dollars, the biggest in the world. In addition, money is pouring into the
mainland as a result of a growing trade surplus, resulting in some
problems like over-mobility.
Meanwhile, people's income has evidently increased along with the rapidly
growing economy, creating increasing demand for investing in security
markets.
Zou Lin, an official with the State Administration of Foreign Exchange,
says these have created a favorable environment for allowing individuals
to invest overseas.
"I think it's the right time to conduct this trial program. There's
strong demand for multi-channel investment and the scattering of
investment risk among individuals. Meanwhile, China's foreign exchange
reserve is now sufficient and able to meet such a demand from investors."
Prior to the pilot program, individuals have only been able to invest
overseas indirectly through banks, brokerages, insurers and fund
managers, through the qualified domestic institutional investors scheme.
Analysts expect individual investors will hit the stocks of mainland
companies listed in Hong Kong after the direct overseas investment
program is put in place. There they can trade at an average of 21 times
earnings, much more inviting than the 50 times multiple for the benchmark
stocks listed in Shanghai and Shenzhen.
Zhang Gang is a researcher from the Chongqing-based Southwest Securities.
"It will have a psychological impact on the mainland A share investors.
But if there are some strict restrictions over the identity of the
investor, the capital outflow cannot be too much."
Hong Kong Financial Secretary John Tsang and chief executive of the
Special Administrative Region's Monetary Authority Joseph Yam have
welcomed the mainland's move.
Hong Kong Exchanges and Clearing Limited has been quoted as saying that
mainland investments in the Hong Kong market will help narrow the price
gap between Hong Kong-listed H shares and mainland-listed A shares, and
will help foster the healthy development of both markets.
Chief economist of the Beijing-based Galaxy Securities, Zuo Xiaolei,
suggests investors be prudent when trading overseas securities.
"It's a very crucial principle on the market that one doesn't invest in
something he's unfamiliar with, especially when it comes to financial
derivatives. Financial derivatives usually pose an unsuitably high amount
of risk for small or inexperienced investors."
China's building up its securities market, with financial derivatives
still in their infant stage. The country has just eased controls over the
issuance of corporate bonds, which have been well developed in developed
nations and many other emerging economies.
"It is advisable that mainland individuals not invest in the products
with high risks."
After Tianjin, the eastern city of Shanghai is expected to become the
next target for the pilot program.
So, to buy or not to buy, have you made up your mind?
(For more biz stories, please visit Industry Updates)
Learn Chinese, Learn Mandarin online
