Risky business: China's market watchdogs take stock of human cost of investment
19/4/2007 16:14
The story is recounted around the trading halls of China: an elderly
investor, under the stress of watching the funds bounce up and down on the stock
market, succumbed to a heart attack and died.
In the past year, millions of
Chinese have gleefully plunged into the stock market in the hope of making a
fortune, but now experts are warning that investors should not immune themselves
from risks even in a bullish market.
"Developing the capital market is an
important step in the reform of China's financial system," said Yin Jianfeng, a
financial expert with the China Academy of Social Sciences (CASS).
"But the
government and securities dealers should ensure investors are well informed of
the risks when drawing large sums of money from their savings accounts for stock
investment," Yin said.
After four years in the doldrums, China's stock
markets began to rebound at the beginning of 2006, with the benchmark Shanghai
Composite Index almost more than doubling in a year.
The number of new
trading accounts opened by individuals in the Chinese mainland's two bourses
reached five million in the first quarter this year, compared with 3.08 million
for the whole of last year.
However, investors are warned to curb their
enthusiasm with a bit of education.
"A great number of investors are not
aware of the risks they are exposed to and do not know how to keep risks under
control," said Shang Fulin, chairman of the China Securities Regulatory
Commission (CSRC).
Stories abound of novices, coming into the trading hall
for the first time, requesting the percentage interest a fund pays; retired
couples spending all their savings, speculating on the stock market; and young
people pawning their apartments for loans to invest in stocks.
Last month the
CSRC launched an education campaign targeted at stock and fund investors,
requiring securities dealers to ascertain their clients' personal circumstances
and to provide them with specially-made warning notes.
The notes explain the
difference between investment funds and savings and tell people to invest in a
way commensurate with their financial resources, and to avoid the high risks of
gambling away money saved for their old age.
"The education campaign will
help protect the investors' interests and lay a foundation for the sustained and
stable development of the Chinese capital market," Shang added.
Earlier this
year, the People's Bank of China, or the central bank, compiled the book
Financial Knowledge for the Public, which states in the preface, "China's
financial industry will develop in a safe and healthy way if everybody gets down
to learning some financial knowledge."
For months the book has been among the
best-sellers in the Beijing Books Building, said Wei Wei, a saleswoman with the
bookstore, one of the capital's largest.
"Books on securities investment are
also enjoying a bullish market in Beijing, with sales soaring almost 100 percent
to 1.54 million yuan (US$197,400) in the first quarter this year," said
Wei.
But a 72-year-old man surnamed Shen, who claimed to be an experienced
stock investor, told novices in a Beijing branch of China Minzu Securities Co
Ltd that "by reading, you can only learn some basic knowledge, but stock
investment is like a chess game where there is always a possibility of
losing."
A week ago Shen had managed to persuade a woman ten years older than
him out of investing in the stock market when she came to the trading hall,
asking what books she should read to pick up the rudiments of stock
investment.
"The 82-year-old woman intended to put her life savings into the
stock market and seemed to know nothing about the risks," said Shen. "For a
person who has no ability to resist risks, reading books does not help."
Zuo
Xiaolei, chief economist with China Galaxy Securities Co Ltd, said, "It is good
for the new investors to turn to books for securities knowledge, but many books
are about short-term investment, and the Chinese capital market needs rational
investment rather than speculation.
"The Chinese stock market is still
immature, and often seesaws up and down," said Zuo. "Some shares are hyped up
far beyond their true worth and many people's money will be tied up once there
is an adjustment.
"A lot of people mistake the education campaign as teaching
investors about how to choose a stock or fund that will yield high returns, but
the campaign was actually launched to tell everyone that they invest their money
at their own risk."
On Feb. 27, Chinese shares dropped sharply on
profit-taking, with the major Shanghai index down 8.84 percent, the biggest
daily drop in 10 years. But they bounced back the next day as the index gained
3.94 percent.
Li Yang, director of the CASS Institute of Finance and Banking,
said, "Mass hysteria and excessive speculation may hinder the development of
China's securities market and undermine the stability of the financial
industry."
Xinhua
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