Investors in China's stock markets are being warned to beware of the hype
about rising stock indexes and "bullish" markets -- at the risk of losing their
In less than a year, the Shanghai Composite Index exceeded 2,000 points from
the lowest point of 1,000 points. The index closed at 2,102.05 points Friday,
hitting new five-year record.
"An investment can take much longer to become profitable than the rising
index suggests," said a stockholder surnamed Zhang at a service branch of
Shenyin and Wanguo, a securities company in Shanghai.
"You are almost sure to lose money, even in the last two months when the
major indexes shot up, if your shares do not belong to the blue chips included
in Hushen 300," said Zhang.
About one fifth of the total stocks listed on the Shanghai and Shenzhen
markets are selected for the Hushen 300 Index, accounting for 60 percent of the
market value in China's stock market.
The result is that just 20 percent of stocks, mainly from the banking, real
estate, steel, power and coal sectors, pushed the major indexes up.
Sun Leimin, general manager of Shanghai Xunsheng Investment and Consulting
Company, analyzed the so-called "two-to-eight" phenomenon from the end of August
last year to Oct. 27 this year when the Industrial and Commercial Bank of China
(ICBC) went public.
Sun found that 42 percent of stocks rose faster than the major indexes in the
first quarter, but the figure dropped to 30 percent in November.
Six blue chip stocks, including the ICBC, the Bank of China and the China
Merchants Bank, accounted for nearly 40 percent of the total value on the
Chinese stock markets.
Meanwhile, more than half the stocks had fallen since May. More than two
thirds were cheaper than five years ago when the major index was around 1,900
Analysts believe the "two-to-eight" phenomenon is normal for the Chinese
markets in which a few outstanding stocks are favored by investors.
"China will enter an age of blue-chip-dominated markets and small stocks will
gradually be marginalized," said Xue Lan, Citigroup's China research head.
Analysts warn the bullish market belongs to blue chips and investors should
purchase shares in monopoly companies or those with core technology and proven
Despite different views on whether Chinese stocks will keep rising, analysts
agree the market is getting better regulated.
Chinese securities regulators have moved to revive the market with the
non-tradable share reform and urging the return of improperly used money by
listed companies gained from the stock market.
The measures along with the strengthening yuan boosted Chinese shares. The
equity value of the stock markets more than doubled from 3.3 trillion yuan at
the end of last year to a record seven trillion yuan (875 billion U.S. dollars)
As more money is expected to flow from individual deposit accounts to the
stock market, the figure, estimated to account for 34 percent of the year's
gross domestic product, may keep growing.