NCPA - National Center for Policy Analysis

Will China's Composite Index Replace the Dow?

April 15, 2015

The Shanghai Composite Index has doubled over the past 12 months and risen from 3,000 to 4,000 since February, and could be set to go a lot higher. Companies such as PetroChina are rapidly racing up the table of the world's most valuable businesses. It was already the sixth-most valuable company globally by the fourth quarter of 2014, while the Industrial and Commercial Bank of China was in 10th place. At this rate, both will soon be challenging Apple for the top slot, says Wall Street Journal Marketwatch columnist Matthew Lynn.

China is such a huge economy that the rise of its equity index will change the markets globally.

Lynn's claims include: 

  • The Shanghai Composite is going to replace the Dow. It will be where the biggest companies are traded, and there will be so much money cascading out of its trading floors that the flow of cash will overwhelm other bourses around the world.
  • Chinese financial firms are going to dominate the capital markets. More than half the top 20 investment banks and brokers measured by market capitalization now come from China.
  • The markets will become a lot more volatile, and a lot more politically directed. The market is actively managed by the state. If you want to know what is going to happen, you will need to start understanding the internal machinations of the Chinese Communist Party

After lagging the rest of the world for years, China's equity markets are now soaring. China currently dominates much of the world's manufacturing, and they may soon dominate the financial markets as well. This will have a significant impact on every financial institution and investor.

Source: Matthew Lynn, "Three Ways the Rise of China's Stock Market Will Change the World," The Telegraph, April 13, 2015.

 

Browse more articles on Economic Issues