Chinese playing the markets like never before

Updated: May 30 2007, 05:30am hrs
Chinas individual investors, who ignored warnings of a bubble by Asias richest man Li Ka-shing and central bank Governor Zhou Xiaochuan, gave Alan Greenspan similar short shrift.

The CSI 300 index fell less than half a percentage point recently after former US Federal Reserve Chairman Greenspan said gains are unsustainable and the market may undergo a dramatic contraction. The benchmark has jumped 92% this year after more than doubling in 2006. Their comments are just like throwing small pieces of ice into boiling water, which will not cool down at all, said Wang Qing, 36, a full-time investor since leaving his job as a consultancy manager in Shanghai last year. The investment mania is still going on.

Chinas stocks are the most expensive among the worlds major markets after a rally thats drawn record numbers of investors. The number of brokerage accounts topped 99 million this year, with more than 300,000 opened daily. Students, pensioners and maids many with scant investment knowledge are among those who are using their savings and even living expenses to play the market, according to Chinese media reports.

Its easier to make money from stock investment than work nowadays, said Hang Ming, 28, one of about 15 cooks from a local restaurant who were tracking stock prices at the Shenyin & Wanguo Securities Co brokerage in Shanghais Lujiazui district recently. Theres risk, just like in playing mahjong, but I do not care.

The CSI 300 trades at 45 times earnings, triple the ratio for the Morgan Stanley Capital International Emerging Markets Index. Japans Nikkei-225 stock average trades at 23 times earnings, Hong Kongs Hang Seng Index is at 16 times, and the US S&P 500 Index is on a multiple of 18.

It is clearly unsustainable, Greenspan told a conference in Madrid recently. There is going to be a dramatic contraction at some point. Chinas stock regulator recently ordered brokerages to make investors sign a declaration that they are aware of the risks when opening stock-trading accounts, a reflection of official concern at the growing numbers of inexperienced investors. The CSI Index reached new records this week after Hong Kong billionaire Li said recently that the market must be a bubble. Its added 10% since May 6, when the central banks Zhou said he was concerned about valuations. The index closed 0.49% lower recently after swinging between gains and losses.

China is still a market thats not quite in line with international practice, so I would not care too much about Greenspan, said Wu Ruiling, 68, a retired teacher. Wu said shes made a 60% return on her 500,000 yuan ($65,344) investment, buying shares such as Shenzhen Development Bank Co., controlled by buyout firm TPG. Shenzhen Bank shares have jumped 247% in the past year.

The rally has been driven by expectations that annual economic growth of more than 10% will spur corporate earnings. China has 17.2 trillion yuan ($2.25 trillion) of household deposits that have been earning less than the rate of inflation, encouraging savers to shift money into higher-yielding assets.

Right now, valuations are relatively high, but if you look at liquidity, at the amount of domestic savings, that liquiditys got to go somewhere, said Sean Tseng, who manages about $50 million at Polaris Securities Co in Hong Kong.

The central bank recently raised the deposit rate to 3.06% from 2.79% to help cool investment. The government also this month allowed Chinas banks to buy stocks overseas for the first time, easing a ban thats contributed to the high valuations by limiting investment options.

Stock investing has so gripped the public that it has caused labour shortages, according to local media reports. About 10% of maids in Shanghai have resigned because they make more money trading shares, the government-run Eastday website reported recently, citing a local employment agency. A Shanghai training company has set aside half an hour twice a day for employees to play the market, according to a news report. Shi Changxing, a 60-year-old monk, trades stocks from a computer in his room in a temple in Xian in northwest China, state-controlled broadcaster China Central Television reported recently. Shanghai investor Wang said hes made a threefold return on the 100,000 yuan he invested in the market in August. His profit is equal to 40 times his former monthly salary of 5,000 yuan.

Bloomberg / Zhang Shidong and Jianguo Jiang