CHINESE INVESTORS IGNORE BUBBLE TALK TO OPEN NEW ACCOUNTS By Jamil Anderlini in Hong Kong and Geoff Dyer in Shanghai
Thursday, April 19, 2007
Chinese retail investors are rushing to open new share-trading accounts at a faster rate than ever before, in spite of increasing signs of a resurgent bubble in the mainland market.
In the past week alone, more than 1m new accounts have been opened, taking the total for the past four months to in excess of 10m – more than the previous four years combined.
The wave of new money has led the Shanghai and Shenzhen markets to consistently hit record highs, having bounced back from an 8.8 per cent correction on February 27, which many blamed for a global sell-off.
However, analysts warned that current price levels were unsustainable and the market could be approaching another correction.
“This is definitely a bubble in the making – for the vast majority of stocks positive earnings growth has been priced in until 2009,” said HSBC equities analyst Steven Sun. “At the height of the last stock bubble [in 2000-2001] we saw investors opening 2m accounts a month which is half the current rate.”
“Any money getting into the market now is not smart money and is coming from the kind of people who can least afford to lose it,” said Fraser Howie, author of a book on the Chinese stock markets. “That has to have the government worried about social stability.”
The rush to join the Chinese stock frenzy comes after the market rose more than 130 per cent last year and a further 40 per cent so far this year. The benchmark Shanghai Composite Index rose 0.01 per cent yesterday to hit another record high.
Retail investors began returning to the stock market in large numbers last May, following a five-year bear market, and since then the pace of new account openings has steadily accelerated. The figures for new accounts are considered a rough proxy for new retail investors entering the market, although there have been cases in the past where individual traders have opened thousands of accounts using fake identifications. There is also an element of double-counting in the figures, as many investors open accounts in both Shanghai and Shenzhen.
Even as retail investors continue to pile in to the market, foreign investors have become increasingly cautious about mainland shares and one international fund manager said he now had more of his Chinese assets in cash than at any time since the government first allowed foreigners limited access to domestic stocks. Foreign investors are restricted to buying a combined $10bn in locally listed stocks.
Prior to the February correction, Beijing had tried to cool market sentiment, publishing prominent editorials in the state-controlled press warning of the risks involved in stock investments. However, since then the government has been conspicuously quiet, leading many investors to assume the leadership has granted its tacit approval to the ongoing bull run.
“We expect the government to come out with more measures to cool the market soon,” said JPMorgan chairman of China equities Jing Ulrich.
