The Hang Seng Index is likely to end this year at about 22,000 points, while the Shanghai Composite Index may end at 3,600 points.
There is a very limited number of Chinese brands if you shop at big shopping malls.
The country has strong buying power because of its rapidly expanding middle class.
However, Chinese brands are still considered as low-price and of bad quality.
The majority of Chinese businessmen care more about immediate profit rather than investing in brand building.
By contrast, Germany, a country with only 80 million people, has several thousand global brands.
Its culture values quality products, and regulation of industry also contributes to building brands.
The United States has an advantage in technological innovations, which led to leading global brands like Apple.
South Korean cosmetics brands are popular worldwide.
However, China has a massive market but lacks good brands because of the lack of protection for intellectual property rights.
And its citizens are price-sensitive, which has eliminated quality products.
Meanwhile, Chinese officials and business owners are pretty short-sighted, which will hamper the long-term growth of the economy.
There are very few good listed companies in Hong Kong and the mainland for medium- and long-term investment.
Mainland investors are used to short-term speculation on government policy, and business owners neglect the long-term benefits of building brands.
Beijing should develop global brand names and encourage them to tap into overseas markets in the future.
China has cleared the way for a registration system for initial public offerings early next year.
There will be a supply of 500 to 600 new stocks next year.
That could pose more risk for mainland retail investors, who still lack a view of investment in equities as a means of long-term wealth allocation rather than short-term speculation.
The government should deepen the reform of state-owned enterprises as well as encourage entrepreneurs.
In the past, SOEs were responsible for job creation. Their leaders focused on retaining their power instead of making profits.
Private companies, meanwhile, have restricted access to bank lending.
And frequent policy changes have prompted them to concentrate on short-term benefits.
As a result, both state-owned and private brands have failed to go global.
And most Chinese companies are still mired in dealing with policy initiatives.
Some Chinese companies with US-listed ADRs are looking to return home.
Most of them are internet giants, and their return would help boost the supply of quality stocks in the Hong Kong and mainland markets.
Investors should not have unrealistic expectations for any policy support, which will yield some results in the medium and long term.
Different policy initiatives may have different lead times for implementation.
For example, government subsidies will provide an immediate boost for the recipient companies, while measures involving resource allocation and leadership reshuffles may take much more time.
Also, investors should not put too much emphasis on fundamentals and macro factors.
For example, many foreign investors have stressed China’s disappointing economic and debt figures.
I believe capital flows are critical to market development in the short and medium term.
There are many factors contributing to short-term capital flows.
For example, a preferential policy in a certain industry, a rebound in the oil price or a leadership shake-up will all increase market volatility.
This article appeared in the Hong Kong Economic Journal on Dec. 29.
Translation by Julie Zhu
– Contact us at [email protected]