Wednesday May 30, 2007

Chinese investors flood overheated stock market

scrippsnews.com :

The Shanghai CSI 300 index has climbed an astounding 206% in the past year. Despite strong warnings from former Federal Reserve chairman Alan Greenspan and a host of other experts, Chinese investors continue to pour into the stock market. Last week, they opened more than 300,000 new accounts at brokerages every day and have already opened more than 20 million new accounts so far this year, four times the number of accounts opened last year. The new investors helped set a new peak for trading volume at the two major Chinese stock markets, in Shanghai and Shenzhen - the value of shares traded jumped by 17% to reach a record $50.9-billion Monday - putting China in the same league as the New York Stock Exchange in terms of recent volume.

Last week, Greenspan said the Chinese stock rally is unsustainable and could suffer a "dramatic contraction" in the near future. China's central bank governor, Zhou Xiaochuan, and Asia's wealthiest tycoon, Li Ka-shing, have both issued similar predictions of a bubble in the Chinese stock market. Yale University economics professor Robert Shiller, an expert on global markets, warned that China was experiencing "irrational exuberance" and could be facing a major correction in the next few months. "It could even spark a worldwide recession," he said.

But at trading halls in Chinese brokerages, no one seems worried by the predictions. The stock boom has attracted a flood of new money from millions of newcomers to the market, including elderly pensioners, students, maids, security guards, Buddhist monks, taxi drivers, and even young schoolchildren. A group of 9-year-old students at a primary school in Nanjing is among the latest stock investors. Some Chinese investors are borrowing large sums of money or pawning their possessions to gain money for buying shares.

- When pensioners, security guards, cleaning ladies, and 9-year-old students try to get into the stock market, the crash can't be too far behind. This is starting to sound eerily like 1929, just before the (first) Great Depression, when bellboys, doormen and parking attendants were trying to get into the stock markets too.

As some wise ones have said, history doesn't really repeat itself, but it often rhymes. "This time is different," the not-so-wise ones have often retorted. Famous last words.

See also :

1. Bank queues in China

(2007-05-30 12:56:57 SGT) [Biz] Permalink

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