What to Look For in China's Stock Market
Kathleen Rutherford
and poor alike flocked to the city to participate in its beauty,
excitement, and economic prosperity.
These days millions are flocking to Shanghai but for very different
reasons, the stock market. I've been watching the international
markets for some time, and just a few days ago I noticed that the
Shanghai Index was nearing a mythical 4,000 mark.
Now, in general, I support markets moving upwards but this is getting
frightening. A few quick facts to put the fear of China into you
as well:
The Index closed just the other day at 3,950, shy by just 50 points of
the 4,000 mark.
The index is up 24% since the end of March.
The index is up 48% since the beginning of the year.
The index is up 240% in the last 2 years.
More than 10 million new retail stock trading accounts have been
opened this year . . . yes this year, we are less than 6 months in.
The last time the market crossed an important milestone (3,000) the
market stumbled 8% the very next day. Are you shaking your head and
wondering how you can short this market yet?
I truly believe a robust market is nothing to fear, but I feel like
this is getting out of hand. The feeling is so similar to the
NASDAQ in 1999 & 2000, I started having flashbacks. Everyone
and their mother had a trading account and a hot stock tip, and it
seemed like everyone was making fortunes off moves in the market.
A major concern crosses my mind with this emerging market. China
is nowhere near as advanced in its methods and regulations surrounding
the stock markets. Let me give you one simple example -
investors in the US can easily bet against the market, or sell
short. This simple act prevents markets from running to the
upside and provides a counterbalance to trading. Yet this
necessary constraint is not yet developed in the China markets.
Stock index futures, the Wall Street Journal pointed out, are expected
to be introduced in the next few weeks. They will initially be
tightly regulated, but none the less, it will be a way for investors
to bet against the continued trend upward in the market . . . and at
some point they may become a self fulfilling prophesy.
Apparently, I'm not the only person concerned about the markets.
The Chinese market itself has started increasing minimum margin levels
and limiting contract purchases for individuals. Hold on to your
hats, a rollercoaster ride is not too far away.
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