AFP, Shanghai :
Hundreds of thousands of investors are piling into China’s stock market on the back of a spectacular rally, driving up prices in a borrowing-fuelled frenzy despite warnings of heightened risks.
The benchmark Shanghai Composite index was sent skywards by a surprise
interest rate cut on November 21, since when it has soared almost 20 percent-despite also recording its biggest one-day fall in five years.
In the two weeks after the announcement, 495,819 new investor accounts were opened on the Shanghai bourse, according to China Securities Depository and Clearing, which clears and settles stock trades-twice the rate before the move.
Liu Chang, an investor in Wuxi, had been out of the market for years but is now back in.
“For the time being, stock investment definitely makes money much faster than anything else,” he told AFP. “People tend to go with the tide and do whatever others are doing, it’s a Chinese characteristic.”
Yuan Hai, a civil servant in Guangdong province, has seen colleagues and friends opening new accounts or activating old ones to get a piece of the action.
“When people got wind of the rally, they showed a willingness to enter the market,” said Yuan, who started trading in July. “The stock market had been lukewarm since 2008 and the take-off now has met with enthusiasm.”
Analysts say the interest rate cut made deposits and other investments less attractive and heightened expectations of more easing measures-while retail investors, who make up the vast majority of traders, are worried about missing a rising market.
“Turnover, leverage and account openings have all soared and there is a sense of mania taking hold,” Capital Economics chief Asia economist Mark Williams wrote in a report.
Leverage refers to investors’ use of borrowed funds from brokerages to trade stocks with only a small portion of money, or margin, put down as deposit. Margin trading amplifies both profits and losses.
By the close on Thursday, the latest available figures, Shanghai’s
outstanding balance of margin trading transactions had reached 617.4 billion yuan-around $100 billion-up 27 percent from November 21, exchange data showed.
Property owners-put off by newfound sluggishness in a sector that was once a pillar of China’s economy and a long-favoured investment destination-are also pouring their money into stocks in search of higher returns, analysts said.
“Funds on the sidelines flew in from the banking system, trust products, the property sector and other channels, as everyone has seen the wealth effects,” Central China Securities analyst Zhang Gang told AFP.
Chinese markets have underperformed in comparison with the rest of the world for years, and in late August the official Xinhua news agency sought to talk them up, publishing nine articles within four days highlighting low valuations and the need to “reinvigorate” the stock market to “revitalise” the domestic economy.
Hundreds of thousands of investors are piling into China’s stock market on the back of a spectacular rally, driving up prices in a borrowing-fuelled frenzy despite warnings of heightened risks.
The benchmark Shanghai Composite index was sent skywards by a surprise
interest rate cut on November 21, since when it has soared almost 20 percent-despite also recording its biggest one-day fall in five years.
In the two weeks after the announcement, 495,819 new investor accounts were opened on the Shanghai bourse, according to China Securities Depository and Clearing, which clears and settles stock trades-twice the rate before the move.
Liu Chang, an investor in Wuxi, had been out of the market for years but is now back in.
“For the time being, stock investment definitely makes money much faster than anything else,” he told AFP. “People tend to go with the tide and do whatever others are doing, it’s a Chinese characteristic.”
Yuan Hai, a civil servant in Guangdong province, has seen colleagues and friends opening new accounts or activating old ones to get a piece of the action.
“When people got wind of the rally, they showed a willingness to enter the market,” said Yuan, who started trading in July. “The stock market had been lukewarm since 2008 and the take-off now has met with enthusiasm.”
Analysts say the interest rate cut made deposits and other investments less attractive and heightened expectations of more easing measures-while retail investors, who make up the vast majority of traders, are worried about missing a rising market.
“Turnover, leverage and account openings have all soared and there is a sense of mania taking hold,” Capital Economics chief Asia economist Mark Williams wrote in a report.
Leverage refers to investors’ use of borrowed funds from brokerages to trade stocks with only a small portion of money, or margin, put down as deposit. Margin trading amplifies both profits and losses.
By the close on Thursday, the latest available figures, Shanghai’s
outstanding balance of margin trading transactions had reached 617.4 billion yuan-around $100 billion-up 27 percent from November 21, exchange data showed.
Property owners-put off by newfound sluggishness in a sector that was once a pillar of China’s economy and a long-favoured investment destination-are also pouring their money into stocks in search of higher returns, analysts said.
“Funds on the sidelines flew in from the banking system, trust products, the property sector and other channels, as everyone has seen the wealth effects,” Central China Securities analyst Zhang Gang told AFP.
Chinese markets have underperformed in comparison with the rest of the world for years, and in late August the official Xinhua news agency sought to talk them up, publishing nine articles within four days highlighting low valuations and the need to “reinvigorate” the stock market to “revitalise” the domestic economy.
