China & Their New Two-Children Policy

Followed by the closing of the senior Communist-party in Beijing on October 29th 2015, a very important policy has caught the attention of the whole nation. China has decided to abandon the one-child policy, allowing couples to have two children due to the issue of the aging population. The country will uphold the basic national policy of population control and continue to improve its strategy on population development, and implement the two children policy in order to deal with an aging population.

This new policy will not only influence the fate of hundreds of millions of families, but it has also made a profound implication on the stock market recently. There are usually three different ways to analyze the stock market: technical analysis, evolutionary analysis, and fundamental analysis. The latter will simply be used because it takes the factor, which in the future could affect the stock market, into consideration. It has been estimated that, after the implement of the two-child policy, the population will grow by approximately 3 million every year. In China, the average expenses of raising a child is 700.000 RMB (approximately 900.000 Swedish Krona), see the table below.

Let us do a simple calculation as follows (1 RMB = approx. 0.154754 U.S. dollars):

Total expenses on extra 3 million new infants:
700.000 * 3million = 2.100.000million RMB

Total school fee on extra 3 million new infants:
100.000 * 3million = 300.000million RMB

Total money flowing into the market:
2.100.000 – 300.000 = 1.800.000million RMB

It means that there will be an increase in consumption with 1.800.000million RMB per year because of the two-child policy. As has been listed on the table, the money will mostly flow into several baby-related branches and bring huge profits to the companies. Examples of these are medicine, milk powder, toys, private education, children’s apparel companies. Thus, the related stock will surge due to the expected outstanding performance of those companies.

The candlestick charts above, significantly shows that the stock of milk powder company, Xinjiang Yilite Industry Co. Ltd, and the stock of baby-related commodity, Weixing Shihua surged at the end of October. More precisely, these two stocks have jumped 4.18 %( Xinjiang Yilite Industry Co., Ltd) and 9.3 %( Zhejiang Weixing Shihua Co.,Ltd).

However, even though it is highly expected that the stocks are valuable for investing, it is still suggested that investors should pay attention to the companies’ stocks in the long run, especially after the release of the real data on baby boom, and make a wise investment.

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