Investing in A Shares...

Reviewing the “Olympic effect” on economies over the past twenty years (from the US in 1984 through Greece in 2004), host countries’ stock markets increased on average by 46% in the 18 months before the games, and increased on average by 44% in the 18 months after the Olympics. To learn more about the expected Olympic effect on the Chinese economy Opalesque recently spoke with Alan Landau, President of Marco Polo Pure Asset Management. To read Part One – see coverage: here.

China: The Olympic effect
In the years leading up to the 2008 Beijing Olympic Games the Chinese government invested $40bln into preparation to host the Games. However, as the end of the first week of competition came to a close the Shanghai A Share Index fell 6.46% (from August 11th-15th) and the return on this investment in form of an “Olympic effect” boost to the nation’s stock markets was yet unseen. “It was always our view that at best the Olympics might have a psychological impact on investor sentiment, which could drive the market higher. We never thought that the money spent by the government would have any meaningful impact on the economy.” says Laundau. He points out that the $40bln spent by the Chinese on these Olympic Games is only 1% of the GDP whereas the $10bln spent by Greece represented approximately 4% of that nation’s GDP at the time they hosted the Games.

In this respect The Marco Polo team feels the Chinese markets have reacted consistently to the fundamentals, and the Olympic Effect, if any, has been minimal. Landau points out the 2006 and 2007 bull markets were driven by growth in corporate earnings and the current bear markets driven by fears of slowing growth. However, one way the Marco Polo Team has observed the Olympics affecting the current market dynamics is in the form of investors leaving the markets over the past six months on the belief that the Olympic Games would be a watershed event and for fear of how China would perform after. “This has created a lot of sidelined capital in China that we believe after the Olympics is over may see the waters as safe once again to return to the market.” says Laundau....

Source:
http://www.opalesque.com/AMB2008/46399Investing_in_A_Shares_Marco_Polo.html


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