Fri, Jan 01, 2016 page14

• Rollercoaster ride leaves Shanghai investors flat

  ‘MONKEY MARKET’: The Shanghai market leaped by 60% in the first six months of the year, before plunging by nearly one-third, before recovering to close up 9.4%

  • AFP, SHANGHAI
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  Chinese stocks ended the year slightly higher, despite a wild ride that saw trillions wiped off market capitalizations in a summer rout that shook global markets and prompted an unprecedented government rescue package.

  From Jan. 1 last year to mid-June, the Shanghai market — which had already surged by more than 50 percent in 2014 — leaped by 60 percent again.

  Then it slumped by nearly one-third in three weeks, before slowly recovering.

  After all the gyrations of the most volatile year in the quarter-century history of the modern Chinese stock market, the Shanghai Composite Index closed at 3,539.18 yesterday, up 9.4 percent for the year.

  “It was the year of the ‘Monkey market’ for Chinese stocks — jumping up and down like a monkey,” China Europe International Business School professor Oliver Rui (芮萌) said.

  However, a small profit will have seemed like a bonus to investors during the depths of the summer turmoil, which prompted an extraordinary government bail-out.

  Beijing spent as much as US$230 billion buying shares to support the market, according to an estimate by investment bank Goldman Sachs.

  Early last year, the government had urged exchanges yet higher with the People’s Daily newspaper, the mouthpiece of the Chinese Communist Party, saying: “The 4,000-point level is merely the beginning of the bull market.”

  Looser controls over margin trading — investors using borrowed funds to trade stocks with only a small portion of money put down as deposit — also fueled the bubble, and its subsequent burst after regulators cracked down on the practice.

  “Everyone took the rollercoaster ride, but in the end the market is still where it began,” Phillip Securities Group (輝立證券) analyst Chen Xingyu (陳星宇) said.

  The Shenzhen Composite Index, which tracks stocks on China’s second exchange, performed far better for the year as investors chased smaller company shares in the face of Shanghai’s weak performance. It surged 63.2 percent for the year, making it one of the world’s top performing markets.

  For some analysts, the government bail-out raised deeper questions over its commitment to economic reform, as the moves were widely viewed as anti-market.

  Regulators barred major shareholders from selling, allowed hundreds of companies to freeze trading in their stock and funded a “national team” to buy for the government.

  “They stabilized the market, but they’ve done that at a tremendous cost,” said Fraser Howie, an independent analyst and co-author of Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.

  China needs to push stock market reforms, including allowing the China Securities Regulatory Commission to operate more independently, he said.

  “You’ve got to have a regulator that’s free to make decisions and have independence, rather than being a cheerleader for the market on the way up and a nurse on the way down,” he said.

  State media on Sunday reported that one long-awaited reform, a revamp to the system for initial public offerings, was moving ahead after lawmakers authorized the central government to make changes.

  Regulators now hand-pick the companies to list and set their flotation prices, instead of the market.

  The government should also seek to grow the number of institutional traders, experts say, as most investors are individuals bent on short-term gains.

  “The volatility this year was the most severe in the history of the market as it was driven mostly by liquidity and people’s emotions, and had very little to do with economic fundamentals,” Citic Securities Co (中信證券) analyst Zhang Qun (張群) said.

  Citic Securities forecasts the Shanghai index could move up this year after finding some stability, trading broadly in a range of 3,000 to 4,500.

  However, retail investors like Lu Xinjie would like to see bigger gains this year.

  A game designer, Lu complains about a lackluster year after jumping into the market at its peak.

  “My stock account still has the same amount of money from when I started,” he said. “I feel like I’m not suited to trading stocks.”

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