Speculative frenzy grips China

Speculative frenzy grips China
SHANGHAI, Aug 1 – Just a week ago, Candy Xie, 24, was all ready to make a quick buck on China’s roaring stock market.

The waitress had poured her entire savings of 7,000 yuan (S$1,480) into the shares of two companies that had just gone public.

She said she was a firm believer in the folk mantra xin gu bu bai, or “new stocks never fail”, which appears to have beguiled China’s legion of opportunistic retail investors recently.

“Everyone says they are buying new shares so I’m sure I’ll make money speculating on them,” she said on Monday when one of her punts, Sichuan Expressway Company, made a sizzling debut on the Shanghai bourse.

That day alone, the stock shot up by more than four times from its initial public offering (IPO) price of 3.6 yuan. Feverish trading was suspended twice.

The company’s share price fell back to earth the next day.

Although Xie made a small profit after selling off her Sichuan Expressway shares on Thursday, she admits she is now less sure of making money by punting on the roller-coaster Shanghai stock market.

She is but one of the millions of investors putting their hopes in China’s resurgent stock market. It has shot up by some 90 per cent this year, based on the benchmark Shanghai Composite Index, and recently overtook Japan as the world’s second largest behind the United States.

More than a million Chinese have opened new trading accounts in the two weeks leading up to July 24 – an 18-month high – after Beijing lifted a 10-month ban on new listings in June.

They are betting on a bull run driven partly by funds suspected to have leaked from loans meant for China’s 4 trillion yuan stimulus package.

Most of them are looking to capitalise on a fresh crop of IPOs featuring start-ups and tech firms that will be floated on the upcoming ChiNext exchange in Shenzhen, said Zhejiang University commerce professor Li Jiming.

Of these new investors, a large number appear to be “relatively young newbies with low incomes”, said a manager surnamed Li at a brokerage in Beijing’s Dongcheng district.

A large number of these stock market neophytes are from the “post-1980” generation of Chinese aged 29 and younger, according to a report on Xiamen news portal xmfish.com.

It cited a Wang Wei, 18, who opened an account on Monday at the encouragement of his colleagues. He was quoted as saying: “I don’t have much savings, I’ll just invest 10,000 yuan or so first. The market is rising every day, so the pickings should be not bad.”

Even those who had been burnt last year, when the stock market bubble burst amid concerns of overvalued stocks, are venturing back into the market.

Pharmacist Feng Xia, 33, said she did not dare to touch any stocks for a year after the crash. But in May, when the stock market started to gain momentum again, she could not resist the temptation and invested 2,000 yuan into a metal company’s stock at the recommendation of a friend. She made 700 yuan.

Said another returnee, gym trainer Liu Gang, 25: “I lost a lot of money during the last crash. But this time, I have a gut feeling the boom will last for a few months, so I’m going to going to invest all my savings in stocks.”

Alarmingly, about 52 per cent of small investors who snapped up the Sichuan Expressway stock on its debut said they suffered paper losses – to the tune of 30 million yuan, Beijing Youth Daily reported on Thursday.

On Wednesday, a massive sell-off had set in with the Shanghai Exchange plunging 5 per cent on concerns that shares were overpriced and banks may cap their lending targets.

The market posted a strong recovery over the next two days. This followed an affirmation by China’s central bank to follow a “moderately loose” monetary policy to support the nation’s economic recovery, which suggested that it will not rein in lending in the near future.

Banks have unleashed a staggering 7.4 trillion yuan in new loans in the first six months of this year, as part of the government’s stimulus measures.

But about 20 per cent of the loans has reportedly gone into the stock market.

Analysts said that one big red flag of a bubble forming in China’s stock market was the huge turnover on the debut day of trade for China Construction Engineering Corp on Wednesday.

The builder of the “Water Cube” Olympic aquatics centre said its IPO was more than 35 times oversubscribed.

Even those lucky enough to be allotted shares – like Sheng Tao, 45, who applied for about 70,000 shares but got only 2,000 – was in no mood to hold on to the stock as speculative fever escalated.

When asked why he wanted to sell his shares as quickly as possible, the vice-manager of a textile company in Beijing declared: “Now is the time for speculation. I just want to make money and get out quickly.”

Beijing is already starting to pay attention to the retail investors’ frenzy.

State broadcaster China Central Television and People’s Daily, a Communist Party newspaper, have warned about the perils of speculation this week. The country’s bank regulator has also urged commercial banks to ensure loans are not misused.

However, some people argue that such concerns may be premature.

Professor Li noted that with the Chinese economy expected to perform well later this year, a sharp rise in the stock prices of companies with stable performance should not be viewed as a bubble.

“Right now, there is a bubble in certain stocks only, but not for the entire market,” he argued. – ST