NASDAQ Run''s

[Arctec]

MADE IN CHINA. Credit Suisse Chief Asian Economist Dong Tao is one of the guys we regularly read when it
comes to what’s happening in the Asian markets. Tao is based in Hong Kong and has his ear to the ground – who
you rather get insights from, someone on Bay or Wall Street? Tao says Beijing is not against stock market rallies,
but is attempting to control the pace of asset appreciation and reduce speculation. The market is likely to move up
further, until a new round of austerity measures is launched targeting the capital market, perhaps around midyear.
Five reasons why the Chinese government will not crash the stock market now:
1. Social stability is of the utmost importance a week ahead of the annual National People’s Congress. Stability and social
justice will be the central theme of the Premier’s report.
2. With the exception of financial stocks and junk stocks, the valuations of the majority stocks are not as overvalued as people
perceive. The domestic economy has achieved a soft landing and corporate earnings remain healthy.
3. Using global valuations as a benchmark to judge whether China is experiencing a bubble is misguided. The vast majority of
Chinese capital has no access to financial markets abroad. Domestic interest rates, currently at 2.5% in nominal terms and
negative in real terms, are a better benchmark for the cost of capital.
4. A healthy capital market is crucially important for Beijing to offload state shares and pursue pension reform.
5. The government official who engineered the “non-tradable share reform” that jump-started the latest bull rally, is expected to
step down soon, but he will be succeeded by his deputy, who spearheaded and executed the reform. The succession is planned
and with no changes in policy direction.