Shares lev­i­tate on tor­rent of cash as in­vestors ig­nore risks

China Daily (Canada) - - FRONT PAGE - By LI XIANG lix­i­ang@chi­nadaily.com.cn

Obliv­i­ous to the in­creas­ing risk of be­ing caught in a burst­ing bub­ble, in­vestors con­tin­ued to pile into the red­hot stock mar­ket onWed­nes­day, send­ing the bench­mark Shang­hai Com­pos­ite In­dex to yet an­other seven-year high.

Both the Shang­hai and Shen­zhen mar­kets rose sharply, with more than 150 shares surg­ing by the 10 per­cent daily trad­ing limit.

The Shang­hai in­dex jumped 2.44 per­cent to 4,398.49 points, af­ter a short-lived cor­rec­tion on Mon­day.

Stocks of com­pa­nies in the nu­clear en­ergy sec­tor were among the big­gest gain­ers, boosted by me­dia re­ports that China had agreed to ex­port five nu­clear re­ac­tors to Pak­istan in a deal val­ued at about $15 bil­lion, by far the coun­try’s largest over­seas nu­clear en­ergy project.

Fi­nan­cial stocks in­clud­ing bro­ker­ages, banks and in­sur­ers were also among the day’s win­ners.

The frenzy lifted many small-cap tech­nol­ogy stocks on the startup board ChiNext, even though many an­a­lysts have said that th­ese com­pa­nies are over­val­ued.

Un­like the boom in 2007, this bull run has been heav­ily pow­ered by liq­uid­ity from lever­aged trad­ing, an­a­lysts said.

In­vestors have been pour­ing cash into the eq­ui­ties mar­ket through mar­gin trad­ing, which al­lows them to bor­row money from bro­ker­age firms to pur­chase stocks. They can be lever­aged up to three times.

Out­stand­ing mar­gin loans by se­cu­ri­ties firms on the Shang­hai Stock Ex­change hit a record of 1.15 tril­lion yuan ($190 bil­lion) on Tues­day, ac­cord­ing to the ex­change.

That is not far be­low re­cent daily trad­ing vol­umes.

Some in­vestors have been seek­ing much higher lever­age through cer­tain trusts and banks’ wealth man­age­ment prod­ucts, which could pro­vide lever­age as high as 10 times.

The se­cu­ri­ties reg­u­la­tor has banned bro­ker­ages from sell­ing such highly lever­aged trusts to their clients in an at­tempt to cur­tail risks.

But that move, and re­peated warn­ings about mar­ket risks, have been widely ig­nored. In­vestors opened a record 3.26 mil­lion new trad­ing ac­counts last week, nearly dou­ble the num­ber of the pre­vi­ous week, af­ter the reg­u­la­tor re­moved the “one in­vestor, one ac­count” re­stric­tion, ac­cord­ing to China Se­cu­ri­ties De­pos­i­tory and Clear­ing Corp Ltd, a State-owned clear­ing ser­vice com­pany.

The most en­thu­si­as­tic in­vestors hail from Guang­dong prov­ince. They opened more than 270,000 ac­counts in March, ac­count­ing for 11.3 per­cent of new ac­counts that month in the Shang­hai mar­ket.

While some an­a­lysts have warned that the mar­ket ap­pears to be over­bought and over­val­ued, the bullish view re­mains the dom­i­nant sen­ti­ment.

Ge Jun, a strate­gist at Changjiang Se­cu­ri­ties Co Ltd, said that the daily turnover in the A-share mar­ket will likely ex­ceed 2 tril­lion yuan, driven up by in­vestors’ ex­pec­ta­tions of fur­ther­mon­e­tary loos­en­ing by the gov­ern­ment to shore up the econ­omy.

Five of the 11 pro­fes­sional money man­agers from the Chi­nese main­land, Hong Kong and Tai­wan sur­veyed by Bloomberg last week said they plan to boost hold­ings in the A-share mar­ket dur­ing this quar­ter, while four will main­tain po­si­tions and just two will re­duce their stakes.

“New­funds have been con­tin­u­ing to flow into the mar­ket and I need to fol­low the trend,” Dai Ming, a money manager at Heng­sheng As­set Man­age­ment Co in Shang­hai, which over­sees 1.2 bil­lion yuan, was quoted by Bloomberg as say­ing.

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