Emerging markets

Himanshu , Neha, Kinshoo, Anish, Sethu

Contents
 Definition
 Why invest in Asian Markets

 Why China

 Revaluation risk

 Conclusion


Definition

Emerging markets are countries that are

restructuring their economies along market-
oriented lines and offer a wealth of
opportunities in trade, technology transfers,
and foreign direct investment.
 INVESTING IN ASIAN MARKETS
• Strong & sustainable sources of
yield
• Synonymous with growth- growth in
the region is now forecast at an
annualised rate of 7 per cent over
the next five years
• High dividends due to
Ø better capital management
Ø improved corporate governance
• Investment strategy- focus on
dividends of companies/stocks.
Source:http://www.asiaone.com/Business/My+Money
/Building+Your+Nest+Egg/Investments+And+Savi
ngs/Story/A1Story20091125-182237.html
China remains favorite….
• China's economy is growing at an
annualized rate of 9-10 percent while the
US economy is at 3-5 percent "normally".
•
• The Chinese stock market, as often
measured by Shanghai stock exchange
composite index, has been the best
performing stock index in the world so far
this year
• Better Corporate Governance. Eg. China
Securities Regulatory Commission
(CSRC) 
Political condition
• except for 1989 never faced any serious
political competition.
•  A recent regulatory change which allowed
large chunks of savings to be invested in
the stock market .
• Tax- incentives to attract Foreign
Investment.
• Opening up of Govt Sector. Eg. China Life
Insurance Company, parts of these
companies are spun out to public
shareholders to raise funds for expansion
 • Geographical Reasons..
•

 theexistence of natural resources,

 access to the seaports and inland
waterways.
Economic conditions- China

• The Chinese economy continues to grow --

it expanded by 7.9% in the second quarter
• Bank lending is at high levels
• Interest rates are low
• Buying out of the money call options-
most likely to benefit
 Attractive Economic factors..

 China ranks above other emerging markets in

the World Bank’s Ease of Doing
Business annual ranking.
 Top 5 global destinations of FDI
 China’s economy will continue to be over-reliant
on exports.
 Chinese Gross Domestic Savings continue to be
high.
 China’s share of inward capital declines &
outward capital increased.
 Leading destination for portfolio equity
investment.
•
• Source: National Bureau of Statistics of China, World Bank, Global
Investment Risks
 Volatility is one big risk in the Chinese stock
market
•e.g..9% stock market sell-off in China on Feb.

27, 2007.
 China still limits foreigners' purchases of the
Yuan-denominated stocks that make up the
biggest share of the markets.
 Revaluation Risk of China Currency.
 China is still a communist country, the rules
and regulations for public company trading
and reporting are extremely different 
 REVALUATION RISK

• The official currency of the People's Republic of China (PRC) is

Renminbi
• During the previous decade, Mainland China's Currency was pegged
to the U.S. dollar at 8.28 RMB.
• On July 21, 2005, it was revalued to 8.11 per U.S. dollar, following
the removal of the peg to the U.S. dollar.
• The PRC government has resisted pressure to increase the value of
the RMB
• Appreciation of the yuan would cause the PRC government to buy
fewer United States
treasury bonds
Conclusion
• “In recent years, China has boasted a
rapidly growing economy. The odds that
Chinese companies will continue to do
well seem good, but there are a number
of pitfalls for the individual investor.
Before investing in a Chinese company,
be sure to find out how it operates and
whether it is likely to act in the best
interest of its shareholders.”