Warning signs as investors pile into Chinese stock market
Trading accounts double to 427,460 in a week despite analysts’ warnings
Bloomberg 19 February 2009
(SHANGHAI) Chinese investors rushed to join the world’s biggest rally this year just as HSBC Holdings Inc and CLSA Asia-Pacific Markets said the gains are unsustainable.
Investors opened 427,460 new accounts to trade stocks last week, according to data from China Securities Depository & Clearing Corp, almost double the number in the previous week and the most since the five days to March 28.
The Shanghai Composite Index surged as much as 31 per cent this year even as exports slumped the most in 13 years. The rally has fuelled concerns that companies are using loans to speculate in stocks after new lending rose by a record 1.62 trillion yuan (S$362 billion) in January as part of a government drive to boost the world’s third-largest economy.
‘It’s too late for individual investors,’ said Wu Kan, a fund manager here at Dazhong Insurance Co, which manages the equivalent of about US$285 million. ‘They stand a big possibility of losing money.’ The benchmark index slumped 4.7 per cent to 2,209.86 yesterday, the biggest drop in three months. The gauge jumped 6.4 per cent last week, a fifth-straight week of gains, to close at 2,320.79, above HSBC’s year-end target of 2,300.
While stocks may have ‘further room to run’ before the announcement of further stimulus programmes and the annual session of the National People’s Congress next month, gains may not be sustainable as ‘we do not believe it is supported by fundamentals’, HSBC’s strategist Steven Sun said in a note on Tuesday. ‘We believe this liquidity-led rally is not sustainable amid upcoming earnings seasons, which are bound for disappointments,’ wrote CLSA analyst Manop Sangiambut in a report.
‘There is no sign of a turnaround yet.’ As much as 660 billion yuan of new lending may have been converted by companies into term deposits or used to buy equities, said Li Huiyong, an analyst at Shenyin Wanguo.
‘There’s definitely an element of speculative fever as the increased money supply finds its way into the stock market, but those things tend to be short-lived,’ said Lee King Fuei, a Hong Kong-based portfolio manager at Schroder Investment Management, which oversees about US$158 billion worldwide.
M1, which includes notes, coins and demand deposits, rose 6.7 per cent in January from a year ago, compared with the 18.8 per cent increase in M2, the broadest measure of money supply. The amount of new local-currency loans extended in January was twice the record set a year earlier.
It is a ‘worrisome development that exceptional loan growth has yet to drive up M1 growth, which is a better indicator of aggregate demand, pricing power, corporate profits and therefore market performance,’ HSBC’s note said.
Chinese banks have the ability to monitor how loans given to companies are used, making it unlikely that credit is funnelled into the stock market, said two of the country’s largest lenders.
Industrial & Commercial Bank of China Ltd, the nation’s largest, puts companies seeking money through a ‘strict’ screening process and can check how the advances are put to use, said board secretary Gu Shu in an interview.
1 comment:
Warning signs as investors pile into Chinese stock market
Trading accounts double to 427,460 in a week despite analysts’ warnings
Bloomberg
19 February 2009
(SHANGHAI) Chinese investors rushed to join the world’s biggest rally this year just as HSBC Holdings Inc and CLSA Asia-Pacific Markets said the gains are unsustainable.
Investors opened 427,460 new accounts to trade stocks last week, according to data from China Securities Depository & Clearing Corp, almost double the number in the previous week and the most since the five days to March 28.
The Shanghai Composite Index surged as much as 31 per cent this year even as exports slumped the most in 13 years. The rally has fuelled concerns that companies are using loans to speculate in stocks after new lending rose by a record 1.62 trillion yuan (S$362 billion) in January as part of a government drive to boost the world’s third-largest economy.
‘It’s too late for individual investors,’ said Wu Kan, a fund manager here at Dazhong Insurance Co, which manages the equivalent of about US$285 million. ‘They stand a big possibility of losing money.’ The benchmark index slumped 4.7 per cent to 2,209.86 yesterday, the biggest drop in three months. The gauge jumped 6.4 per cent last week, a fifth-straight week of gains, to close at 2,320.79, above HSBC’s year-end target of 2,300.
While stocks may have ‘further room to run’ before the announcement of further stimulus programmes and the annual session of the National People’s Congress next month, gains may not be sustainable as ‘we do not believe it is supported by fundamentals’, HSBC’s strategist Steven Sun said in a note on Tuesday. ‘We believe this liquidity-led rally is not sustainable amid upcoming earnings seasons, which are bound for disappointments,’ wrote CLSA analyst Manop Sangiambut in a report.
‘There is no sign of a turnaround yet.’ As much as 660 billion yuan of new lending may have been converted by companies into term deposits or used to buy equities, said Li Huiyong, an analyst at Shenyin Wanguo.
‘There’s definitely an element of speculative fever as the increased money supply finds its way into the stock market, but those things tend to be short-lived,’ said Lee King Fuei, a Hong Kong-based portfolio manager at Schroder Investment Management, which oversees about US$158 billion worldwide.
M1, which includes notes, coins and demand deposits, rose 6.7 per cent in January from a year ago, compared with the 18.8 per cent increase in M2, the broadest measure of money supply. The amount of new local-currency loans extended in January was twice the record set a year earlier.
It is a ‘worrisome development that exceptional loan growth has yet to drive up M1 growth, which is a better indicator of aggregate demand, pricing power, corporate profits and therefore market performance,’ HSBC’s note said.
Chinese banks have the ability to monitor how loans given to companies are used, making it unlikely that credit is funnelled into the stock market, said two of the country’s largest lenders.
Industrial & Commercial Bank of China Ltd, the nation’s largest, puts companies seeking money through a ‘strict’ screening process and can check how the advances are put to use, said board secretary Gu Shu in an interview.
Post a Comment