The plummeting of the composite index of the Shanghai Stock exchange has caused investors to lose their fortunes but international investor Jim Rogers tells them to stay put.
THE Shanghai Stock Exchange’s composite index reached a record high of 6,124 points last October and over the past six months its continuous slip has put China back in the limelight.
The composite index has plummeted to almost half following concerns over recession in the United States.
As of Thursday, the blue chips in the market led the index to close at 3,471.74 points. Gainers in the market outnumbered losers 692 to 146, while 15 remained unchanged.
The third rebound of the week came after news of several major companies’ announcement on their first quarter’s earnings.
Among those recovering blue chips that reported substantial climb in profits were China Coal Energy Co, Haitong Securities Co and Industrial & Commercial Bank of China.
“The underlying reason for the drop in the Shanghai Composite Index is the too high valuation for the A shares,” a Shanghai-based analyst, who wanted to remain anonymous, told The Star recently.
“It is really difficult to predict whether the composite index will continue to do well till mid-year even with the rebound in stock prices recently. It is very much depends on the impact of the US recession.”
Many investors lost fortunes as they sold their shares at lower prices when the stock market plunged to so-called rock bottom in the recent months.
The analyst said the poor performance of the market had hurt individual investors badly during the market correction from a much-worried excessive growth of the market especially towards the end of last year.
“Despite the losses , there should be no direct impact on China’s economy. Stock market in Shanghai is just a reflection of its economic growth,” he said.
In an interview, No.1 Caijing Business News quoted economist and Yanjing Overseas Chinese University president Hua Sheng as saying that the bullish market that happened last year had surpassed many pundits’ expectation.
“Before the Shanghai composite index hit the 6,000-point mark, the bubble grew from mainly blue chip gainers to a collective one and apparently, the market had drifted away from the fundamentals of economics,” he said.
“Now that the index has plunged to the 3,300-point mark, it is quite a scary moment but this is mainly caused by inflation, the US subprime loan crisis and the decline of turnover of listed companies. This is quite a natural market reaction.”
Hua said the market correction was timely to prevent the bubble from growing bigger but stressed that investors were still unsure if the market would continue to go below the 3,300 mark.
Shanghai Daily quoted Guohai Securities Co analyst Wang Antian as saying that investment confidence had yet to recover fully.
“It’s likely to see further correction as it is far too early to say this is the bottom,” he said.
Statistics showed that 70 million accounts were opened for A shares in 2005 and within two years it shot up to 112 million. This indicates many more investors have entered the market.
However, new investors who have limited experience in risk management tend to join the bandwagon when the market is bullish but pull out when the market experiences turbulent times.
Renowned international investor Jim Rogers told Chengdu Business Daily that he would encourage investors to stay put in the Shanghai stock market even though it may not seem to be the right time to trade.
“If you sell your shares in Chinese companies this year, it would be as regretful as selling off American shares in 1908 when those retaining the shares at that time turned out to be winners,” he said.
Rogers said that China was developing on the right track and had great potential. He added that those who buy shares of Chinese companies would reap their fruit of labour between 10 and 20 years.
“Renminbi investment is the safest investment in the world. I have renminbi and will continue to buy more. Two to three weeks ago I started to buy shares in some Chinese companies.
“The stock market has been corrected. If the market’s index goes down in future, I will still continue to buy shares available there,” he said.
The newspaper reported that the 65-year-old American, who founded the Quantum Fund with George Soros, had invested in the A shares of the Shanghai Stock Exchange in water management, agriculture, energy and tourism sectors.
To reduce risk and increase profitability of investors in the market, Chinese authorities have approved more mutual funds, bonds and securities.
They also advise investors to remain cautious in the volatile market by adopting a wait-and-see and long-term investment approach.