Stock market fever grips China, luring throngs of new investors to hot markets

BEIJING—Investment advisers issued warnings of an overheated stock market Thursday as local markets propelled to new highs and throngs of new Chinese investors flocked to open accounts.

Market mania has gripped China's larger cities. Anonymous text messages urge Beijing mobile phone users to buy stocks and "cherish the dream of overnight wealth," while news accounts tell of distracted workers idling for hours while checking prices.

The Shanghai Composite Index brushed off a chorus of concerns that it is overvalued, surging 0.91 percent Thursday to 4,049.7, prolonging a lengthy run-up.

The market has climbed 51 percent this year, whipping past the 3,000 barrier in March and hurtling through 4,000 this week. The market has tripled in value since early 2006.

The "risk of market euphoria is building," Goldman Sachs said in a research report, noting that news reports and anecdotal evidence indicate that the "market has already gone into an irrational state and that the market bubble may be on the verge of bursting."

Still unclear is whether China's senior leaders will intervene to cool investment fever or leave China's 94 million brokerage account holders to their fate.

"If nothing happens, the Shanghai composite hitting 5,000 within one month is possible," said Stephen Green, a senior economist with Standard Chartered Bank.

While some policy-makers in Beijing want to leave the markets alone, others itch to take steps "because they fear the consequences of a severe correction," Green said.

A 9 percent plunge in China's stock markets on Feb. 27, the biggest one-day drop in a decade, sparked a global stock sell-off. Chinese markets recovered and renewed their relentless climb.

The average valuation of Chinese stocks is three times higher than elsewhere in Asia and among the highest in the world.

During a noonday television newscast, former Shanghai Stock Exchange deputy chief executive Fang Xinghai warned investors of the risks ahead. "I think they should get out. They should be cautious," he said.

In fact, the opposite is happening. April saw more investors enter the market than the previous two years combined. Investors opened a record 368,489 accounts to trade yuan-denominated A-shares on Tuesday alone and 325,969 accounts on Wednesday. About 6 percent of China's 1.3 billion people own trading accounts.

Thursday's Beijing Evening News said the market was the talk of the capital.

"People from all walks of life are entering the stock market, no matter whether they understand it or not. According to some reports, babysitters, street cleaners and even monks have their A-share accounts now," the paper said.

It quoted one unnamed grandmother who dismissed concerns that she could lose her savings in her new trading account: "One can make money with one's eyes closed in this kind of market. How can it be possible to lose money?"


(c) 2007, McClatchy-Tribune Information Services.

Need to map

Related stories from McClatchy DC