High inflation will affect the stock market?

High inflation will affect the stock market?
May 6, 2008 04:39
FRANKENSTEIN Points: Join Date: Nov 29, 2004 Status: offline	Since the stamp tax was lowered, Chinese stock market has been rebounding back a lot. The Shanghai Composite Index nearly reached 3800 points. Encouraged by the quick rise, ome investors even predict that it will reach 4300 points in May. However, some analysts warn that the short-term rebound in the stock market might be terminated due to the overvalued A share market and high inflation pressure. According to the historical statistics in different countries, the governments usually tighten their monetary policy to combat inflation. At the same time, they raise the interest rates. Because of the high interest rates, the price earnings ratio in the stock market will be affected. If China raises the interest rates to curb inflation, the P/E might go down. Thus, the stock market might be affected. On other hand, many people predict that China will increase the interest rates in the second half of this year. On May 4th, Zhou Xiaochuan, the president of the central bank, emphasized that the government had many other ways to curb the inflation and high CPI except raising the interest rates. However, it didn’t mean that it WON’T increase the interest rates. A research from CCB (China Construction Bank) reveals that the central government might raise the interest rates in the second quarter. Do you think Chinese government will raise the interest rates to combat high inflation and CPI in the near future? If so, will it affect the stock market?

May 6, 2008 04:39

FRANKENSTEIN
Points:
Join Date: Nov 29, 2004
Status: offline

Since the stamp tax was lowered, Chinese stock market has been rebounding back a lot. The Shanghai Composite Index nearly reached 3800 points. Encouraged by the quick rise, ome investors even predict that it will reach 4300 points in May. However, some analysts warn that the short-term rebound in the stock market might be terminated due to the overvalued A share market and high inflation pressure.

According to the historical statistics in different countries, the governments usually tighten their monetary policy to combat inflation. At the same time, they raise the interest rates. Because of the high interest rates, the price earnings ratio in the stock market will be affected. If China raises the interest rates to curb inflation, the P/E might go down. Thus, the stock market might be affected. On other hand, many people predict that China will increase the interest rates in the second half of this year. On May 4th, Zhou Xiaochuan, the president of the central bank, emphasized that the government had many other ways to curb the inflation and high CPI except raising the interest rates. However, it didn’t mean that it WON’T increase the interest rates. A research from CCB (China Construction Bank) reveals that the central government might raise the interest rates in the second quarter.

Do you think Chinese government will raise the interest rates to combat high inflation and CPI in the near future? If so, will it affect the stock market?

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