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Gold Mine: China is heavily reliant upon coal for its electricity needs. Therefore any uptick in coal prices is a sign of a strengthening Mainland Chinese economy.  Photo: Andrew Vanburen

Main reference: Story in Sinafinance

There are three things that will give a big boost to Chinese stocks.

And isn't it nice that here they are for you investors, in plain black and white?

Firstly, the People’s Bank of China (PBOC) – the country’s central bank – needs to continue its growth-friendly monetary policy.

This is especially true following recent macroeconomic data.

The world’s most populous nation reported a third quarter GDP increase of 7.4%.

While such expansion is the envy of the industrialized world, it is still far more anemic than the recent double digit increases that the PRC has grown accustomed to these past two decades.

Also, China’s most recent PMI figures – the most looked-to barometer of industrial vitality – were ahead of expectations.

Therefore, if the PBOC wants the country’s stock market to find its pulse again, it is incumbent upon the Central Bank to keep credit available, within reason.

This will help ensure that the potential (but not guaranteed) returns from the capital markets in Shanghai and Shenzhen are clearly a better statistical favorite for income generation than garden variety savings accounts.

Secondly, investors are certainly aware that the lights over their heads right now as well as the laptops they are using to read this story are more than 80% guaranteed to be powered by one commodity -- coal.

China is no France, and France – by equal measure – is no China.

France’s electricity grid is 80% reliant on nuclear energy, whereas coal fulfils the same role in the PRC.

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Chinese shares are looking for any excuse to break out

Therefore, the recent slump in coal prices has hurt countless numbers of Chinese enterprises, listed or otherwise, in the mining, logistics and power generation sectors.

So any uptick in GDP growth is likely to boost prices for China’s most precious energy feedstock – and lift a myriad of listcos in its wake.

Helping matters is the fact that recent spot and contract prices for coal have continued to edge upwards, already up 2% currently from September levels.

It is easy to overlook this rather dry statistic, and fail to appreciate its importance.

The sheer volume of employment as well as heavy machinery and logistics operators reliant upon a vibrant coal sector is worthy of several separate stories by themselves.

The third factor that could really make or break the A-share markets is the relative vitality of foreign investment in China-listed A-shares – collectively known and the Qualified Foreign Institutional Investor (QFII) program.

If overseas investors and seasoned speculators recognize the return potential in a bottomed-out market like China’s, then the sky’s the limit for those lucky enough to pounce in when the bears give way to the bulls.

See also:

BETTING ON BUFFETT: Is ‘Stock God’ Eyeing Hong Kong?

2013: ‘Year Of The Bull’ In China?

China Pension Fund Chief: Market’s Hit Bottom

'CHINA'S LADY BUFFETT': Latest Dealings 


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