Contributed by: Fang Xiang
Translated by: Zhou Yuan

According to National Bureau of Statistics (NBS), CPI registered a year-on-year increase of 1 percent in January, declining for nine months in a row, and PPI dropped 3.3 percent, diving for five successive months. It is the first time that NBS released the CPI and PPI data at the same time since it revised the announcement rule. Interestingly enough, the share prices in Shanghai and Shenzhen Stock Markets surged. Instead, the unpleasant economic data injected a "stimulant" into the Chinese stock markets. >>> Chinese Version

Reviewing the past market expectations, most foreign financial institutions took a pessimistic attitude towards the stock market prospect. As Goldman Sachs Asian predicted, CPI would continue to fall in January, decreasing from 1.2 percent (last December) to around 0.5 percent; PPI was expected to sink from -1.1 percent (last December) to -3.0 percent. However, according to domestic counterparts, basically, they forecasted that CPI would gain 1 percent in January; PPI grow -3 percent. Therefore, the PPI data released today is in line with market expectations.

PPI slumped 3.3 percent, which is par for the course with insiders, while CPI glided faster than estimated, which clears the deflation expectations of national economy. On the whole, CPI and PPI data are in accordance with the market prediction. Other lately issued economic data, PMI (Purchasing Managers Index) for example, rallied strikingly, which boosts market confidence.

Experts state that the increased stock prices are driven by funds. After being launched in the market, considerable liquid funds flow to the capital market in that they fail to find the real economy to invest, thus promoting the stock market rally. Nonetheless, according to the economic data analysis, the ascending stock index bears a deeper meaning.

In terms of operation law of stock market, external factors will further shape the general trend. Taking the current share market quotations as an example, the sound data will be regarded as evidence of economic revival, hence stimulating investors. Contrarily, the unfavorable economic data will be viewed as an excuse for the management to bring out powerful measures. Even though the CPI and PPI stay declining, the market has predicted that the Central Bank would stimulate economy by lowering the interest rate.

After all, the so-called "stimulant" refreshes the stock market only for a short period of time. Investors should be prudent with the short-term boom. With the flexible monetary policy, the Central Bank adopts various currency readjustment and control measures, instead of adjusting solely the interest rate, according to Zhou Xiaochuan, governor of People's Bank of China. Ma Jun, Chief Economist with Deutsche Bank in Hong Kong, says that it is not that urgent for China’s mainland to cut interest rate on condition that domestic banks go all out to make loans and economic growth is severely challenged.

Technically, the stock market may fluctuate subsequent to the consecutive growth. It is fairly necessary for investors to be cautious.

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