Wealthy quick to bail out

TWO months into China’s stock rout, the dynamics of the declines are becoming clearer: The wealthiest investors have been the quickest to bail out of the market.

The number of traders with more than 10 million yuan (R20m) of shares in their accounts shrank by 28 percent in July, even as those with less than 100 000 yuan rose by 8 percent, according to the nation’s clearing agency. While some of the drop is explained by falling market values, CLSA says China’s rich have taken advantage of state buying to cash out after the nation’s record-long bull market peaked in June.

Investors with the most at stake are finding fewer reasons to own Chinese shares amid weak corporate earnings and some of the highest valuations. With this month’s tumble in the yuan adding to outflow pressures, bulls have started to question whether there is enough buying power to prop up prices once the government pares back its rescue effort – a concern that contributed to the Shanghai composite index’s 6 percent plunge yesterday.

“The high net worth clients are the ones who moved the market,” Francis Cheung, the head of China and Hong Kong strategy at CLSA, said. “They tend to be more savvy.”

The median stock on mainland bourses traded at 72 times reported earnings on Monday, more expensive than any of the world’s 10 largest markets. The ratio was 68 at the peak of China’s equity bubble in 2007, according to data.

More than 62 percent of companies in the Shanghai composite trailed analysts’ 2014 earnings estimates. – Bloomberg