Millions of Chinese seek stocks amid 'blind optimism' In perhaps the clearest sign yet that China's stock market boom has become a speculative frenzy, even corruption has become a buy signal.
Millions of individual investors have piled into the country's roller-coaster stock market, driving the Shanghai composite index up 130 percent last year, an additional 12 percent so far this year and briefly beyond the psychologically significant 3,000-point mark Friday for the first time.
For them, apparently, any news is good news.
Take, for example, Tianjin Global Magnetic Cards. When the Shanghai- listed company failed to report quarterly earnings last April, its stock jumped 137 percent. After Shanghai Haixin Group said that its chief executive was under investigation for "irregular activities," the company's shares doubled over the next two months.
Investors even gobbled up shares in Shanghai New Huangpu Real Estate after the company was linked to a major corruption scandal involving the Shanghai pension fund and the city's jailed former party secretary, sending the stock up 111 percent in five months.
Analysts say the market is rising because of strong fundamentals, good profits, improved regulation and confidence in the China's long-term growth prospects. The benchmark index finished Friday at 2,998.47 points.
But for China's new class of individual small investors, many of whose decisions are guided by a mixture of instinct, rumor and feng shui, these could prove to be dangerous times.
"There's just too much liquidity out there, too much," said Chang Chun of the China Europe International Business School in Shanghai. "This is a psychological thing."
The stock boom is a sharp turnaround from 2004, when share prices were depressed and investors furious. Some of them protested outside the offices of regulators and pleaded for relief. Then, after a series of government changes, investors began to come back. And the floodgates opened.
In a country where most people keep their money socked away in low- interest savings accounts, there is now a tidal wave of money flowing into the stock market. Indeed, trading volumes in China have been so enormous that the Shanghai Stock Exchange recently warned that the country's electronic trading system could be destabilized.
"There's a huge amount of money in the banking system with nowhere to go," said Michael Pettis, a professor of finance at Beijing University.
Stock prices have risen so fast and so high that government officials began warning about a bubble several weeks ago, cautioning against "blind optimism" in the stock market.
Banks were told to stop making loans to people who were speculating in the market.
Stock prices fell sharply for four consecutive sessions in early February as investors seemed to contemplate the possibility of a painful market retreat.
Then, after a brief pause, they rushed in again, as feverishly as before, sending the Shanghai and Shenzhen exchanges back toward record highs.
Because the Chinese stock market system is still relatively immature, and good and trustworthy information about a company's performance remains hard to come by, the average investor does little or no research.
Instead, buying comes after a tip or seeing something on the news.
"If I hear a stock mentioned on the TV news, I will pay attention to it," said Xu Xiaochun, a 55-year-old retiree.
Xu is not alone. Many investors here say the secret to picking stocks is about luck and confidence in the government, not the fundamentals.
"I don't know how to choose a stock," a 61-year-old retiree who gave her name as Miss Hou said Friday at a local brokerage firm. "But I trust those technology companies. Maybe some companies' names sound lucky to me so I choose to buy these stocks."
That is why analysts have long derided the Chinese stock market as a gambling den, where stocks rise and fall on the whims of ill-informed investors, who are increasingly aggressive.
But foreign money, presumably backed by more sophisticated investment analysis, is also piling in, according to J.P. Morgan Chase, and few analysts are betting against the Chinese stock markets.
Pettis at Beijing University, for example, has long been skeptical about the Chinese stock market structure. But he is raising a fund to invest in Chinese stocks because of all the money that he has projected will come in.
"You can't be a fundamental investor in China," he says. "You can only speculate. Fundamental investors make long-term cash flow projections. In China, there's not good information or corporate governance."
The state-owned media here is now reporting that the country's bloated mutual funds are being put to work to play the market. And no one wants to be left behind.
Some investors are being lured by initial public offerings.
Of the 15 companies that went public on the Shanghai exchange, 12 of them had opening day gains of more than 10 percent. The shares of two companies rose more than 100 percent.
And in China's other big stock exchange, in Shenzhen, the market was even wilder. More than 30 stocks jumped more than 70 percent on their first day of trading. One company's shares climbed 332 percent. Not a single company had its stock fall.
This is a market, after all, where, at least for the time being, bribery investigations, fraud and investigations into insider trading can mean only one thing: a rising stock price.
"Purchasing stocks is not an investment, it's gambling," said Wang Wei, a 41-year-old pharmaceutical company executive in Shanghai. "The only reason I stay here is I trust the government won't let prices go straight down." |
