How to cool the stock market - Hu Shuli

Hu Shuli

China's financial authorities got already much advise on how to calm down the overheated stock exchange, but when the chief-editor of the financial magazine Caijing speaks, it is time to listen. She sees basically two ways to deal with the "irrational exuberance", as she rephrases a famous says by Alan Greenspan in 1996.

First, people should not longer be punished for keeping their savings at the bank. With an inflation of 3 percent and an interest rate of 2.4 percent people want to use their money.

Secondly, the government should stop their efforts to educate people but really deal with illegal practises.

Statements such as “there are some cases of illegal operation” in the CSRC notice are too mild. Among those who are active in the market, not a few have problems with conflicts of interest. In some institutions connected with security exchanges, almost everyone trades stocks, and these institutions basically fail to function near the close of a stock-trading day. Trading stocks during working hours has become a “normal” phenomenon. Some relatives of employees of institutional investors even boast publicly about how they make money based on insider information.

(h/t China Digital Times)

US SEC files lawsuit against HK couple

The bid by Rupert Murdoch for Dow Jones has triggered off a law suit by the US SEC for insider trading against Hong Kong prominents, writes Amy Gu, linking to a Reuters' story. At stake is a US$ 8 million.
(more perhaps later).

Shanghai stock market up again

Shanghai stock market was up today almost 3 percent, after having been closed for a week over the May holidays. The market is at least for the time being defying experts' stories that a stiff correction is imminent.

Real estate or the stock market?

Not surprisingly, our Chinabiz-columnist Sam Crispin, clings to every sign the Shanghai stock market is ready for a crash. Sam makes a living in real estate and for that industry the recent six months have not been the best. While we cannot say that the real estate industry is falling flat - as has been predicted wrongly for years - things are also not going that well either.

Hundreds of thousands Chinese investors - and not only them - have been investing in the stock markets as that market has gone up since last year, despite an occasional dip. In his latest column Sam refers to an article in the South China Morning Post by independent economist Andy Xie, who predicts massive mayhem when the government does not cool the market down now. (Unfortunately, the South China Morning Post is hidden behind an outdated financial firewall, but if you look very well, you might find Xie's column here.)

Now, I'm not going to deny there is a bubble and, yes, a correction will come. But what I find strange is that the Chinese media present Andy Xie's story in a different way than the Hong Kong newspaper. In this summary of an interview Andy Xie gave for Phoenix TV we seen an element that would have messed up the argument for the South China Morning Post a bit: Xie says that despite the expected short-up correction, the Chinese stock markets will move upwards for the foreseeable future.

So, yes big problems, but when you prove to have a strong stomach, you might see it through. The difference in tone says more about the different media than about the real situation. The South China Morning Post still seems to love a decent doomsday scenario for China.

Storm at the A-share market

Billsdue summerizes the frenzy at the A-share market. Every day 200,000 newcomers open new accounts to trade on the market, flooding the market with an estimated average of 6 billion Renminbi

J.P. Morgan gets 90 bn Rmb offered for new fund in one day

A new mutual fund by J.P. Morgan Flemming received in one day time 90 bn Renminbi (US$ 11.6 bn) of subscriptions, Reuters reports, more than ten times its own estimation.

The oversubscription ratio is one of the highest seen at any fund since China's stock market bull run began a year ago, and suggests new Chinese investors are continuing to enter the market, fund managers said.

Originally the fund wanted to raise eight billion Rmb in the market, but has decided to increase the figure to 10 billion Renminbi. The rest of the money will be returned. Dealing with a larger amount of capital would be rather difficult to deal with in the current market situation. Also regulators have installed a cap of 10 billion Rmb.
The success shows not only that there is enough money still available in the market. The reputation of J.P Morgan's China International Fund Management Co. has been very successful with their mutual funds in the past, another reason for its current success.

Why and how to invest on the Shanghai stock exchange - the WTO column

I'm helping a few investors to invest some rather smallish funds on the Shanghai stock exchange, as a kind of test of my knowledge of the market. The preparations are already running for some time, and because of the massive upheaval the China stock markets have been causing, it seemed a good idea to share a bit about the backgrounds for an outlandish audience. For most of you, who do not have the Chinese nationality, it is impossible to invest in those so-called A-shares, but that might change in the future, so getting some sense of orientation is not bad.

On Monday in a first move we invested 230,000 renminbi (€ 23,000) in a mutual fund. From the start it was clear we had to go for a mutual fund. Following the stock exchange fulltime was no option for my investors and not for their humble advisor. The stock market is just like the internet: it is good to know what is going on, but you do need a life next to that.

A few figures about the performance of the mutual funds over 2006 from the China Daily:

Fifty-three mutual funds in China reported operating profits of 49.96 billion yuan (6.46 billion U.S. dollars) in 2006, thanks to the country's bull markets. Their net incomes totaled 22.28 billion yuan, while paper profits reached 27.69 billion yuan, according to the annual reports of 53 mutual funds that launched by ten fund management firms.

The record operating profits were seven times greater than the seven billion yuan earned in 2005 by all 206 mutual funds under 46 fund management companies in China.

For the investment we needed to go find a new fund, and when I say new, I really mean new. There are some financial institutes that have pretty new funds and an excellent reputation, like the China International Fund Management, partly owned by J.P. Morgan Fleming, and the E-fund Management. But you cannot wait until those funds have a bit of a track record. Since their value goes up pretty fast, you are losing money when you do not join the day a fund opened. In the end we picked the China Merchant Fund. They launched a new fund on Monday 26 March at midnight, and so we called in a few minutes after midnight. The reputation of their team was not as excellent as the other two I mentioned, but it was still ok and we expect our early move will outweigh that difference.

The Tuesday dip in the Chinese and later the international stock markets earlier this year has put many stock experts outside China on the wrong leg. Wrongly they suggested that the Tuesday dip - still marginal compared to the upswing of 2006 - was a signal that the market would collapse. Some even thought it was a signal the economy as a whole was in trouble. There are two reasons why you should be suspicious about such a connection. First, foreign analysts seem unable to make a living without predicting the demise of China. There are two reasons for them to worry, since China is now going to collapse and even books about the issue do not sell, friends in the publishing business tell me. You cannot make a living anymore in predicting the end of China or the one-party system.

Second, the government is a much more important player in the economy than most foreign analysts assume. There are basic financial reasons for that. About two-third of the shares of state-owned companies, worth a US$250 billion, are in the hands of the government. What is happening to those shares is much more important for the confidence in the Chinese stock markets than any financial weather forecast.

When a study at the beginning of this century suggested the government should get rid of those non-tradable shares, the shares came in a free fall. Then, for years, even official denials of the sell-off caused new plunges, since nobody believed those statements. Otherwise companies and the economy can develop almost any problem, the investors do not care. Now, after last year the half-decade movement south ended, because investors believed the government would do things right this time. On top of that, much more capital is available to soak up those funds.

Maybe in ten years time, when all those shares in the hands of government departments are really sold on the market, the stock market might work like it does in the rest of the world: an an indicator for the stability of the economy.

Fons Tuinstra

(this is a rewrite for Chinabiz of some pieces I published before on my weblog ).

Shanghai stock market: waiting for US$ 78 bn to soak up

The mood at the Shanghai stock market remains optimistic as it prepares to soak up US$ 78 billion worth of previously non-tradable shares, report different media. That is the beginning of a much larger operation as there are still US$ 250 billion worth of shares that will be released on the markets in the years to come.
The rumor of a similar operation caused at the beginning of this century a plunge of the stock market that continued till last year, because shareholders feared the loss of the value of the existing stock. China's state-owned companies typically only floated one-third of their assets on the stock market, keeping the majority under governmental control.
But unlike the situation at the beginning of this century, now the shareholders have more confident in this massive operation, partly because also the liquidity of the market is no problem and the government want to dose the process without disturbing the market too much.

Hundreds of thousands join the stock exchange

Billsdue is back blogging with a pointer to an article showing that in one week about 100,000 news accounts were being opened to join the Shanghai stock exchange. Those numbers have never been achieved in the past, when 50,000 new accounts was considered to be a high number.

Shanghai stock exchange this morning

economy - The investors are having fun again

I just had a glimpse at the Shanghai Stock Exchange and it looks like the people outside are having fun again. It always makes sense to keep your fingers crossed, when you have made some bold statements.
I'm not disappointed by the Shanghainese.