Business4

US Fed move casts dim light on economy

By Lu Chang (China Daily)
Updated: 2010-11-09 10:54

An investor monitors price changes at a securities house in Huaibei, East China's Anhui province. Woo He / For China Daily

BEIJING - China's stock markets will continue to climb in the short term, analysts say, and possibly reach new highs this year due to a recent United States Federal Reserve move that has been harshly criticized globally. Their complaint: It would fuel asset bubbles fears.

The US Federal Reserve (Fed) announced last Wednesday that it would purchase $600 billion in Treasury securities in a bid to revive the sluggish US economy.

Chinese economic analysts, on the other hand, say it will create an influx of funds into the Chinese stock markets, which in the short term will be beneficial for the nation's economy. Long term, however, that growth - which has been growing at a 10 percent clip for many years - is uncertain.

For the United States, the Fed's new monetary policy might be a good choice as it could help boost employment and maintain a low inflation rate (in the US), but it might have a negative influence on the global economy, said Zhou Xiaochuan, governor of the People's Bank of China, at a recent economic summit in Beijing.

The move could further weaken the US dollar and prompt a flood of liquidity to the global economy, especially to emerging economies, Zhou said.

According to analysts from Citigroup, the Shanghai Composite Index is likely to close at 3500 by the end of this year, as the new bond-buying program would further weaken the US dollar.

The index closed at 3,282.2 at the beginning of the year, and the market's record high climbed up 6,124.04 on Oct 16, 2007. Its lowest point stood at 1,820.8 on Sept 31, 2008.

Based on more optimistic assumption, the global emerging-market stocks are going to increase 35 percent by the end of next year, said Shen Minggao, managing director and chief economist of Citigroup Global Markets Asia Ltd.

The benchmark Shanghai Composite Index was up 0.96 percent or 30.01 points at 3159.5 on Monday.

China Daily