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Bull run 'likely' to continue

By Xin Zhiming (China Daily )
Updated: 2007-04-21 09:00

China's stock market is likely to remain bullish for the rest of the year, according to participants at a forum of the Chinese Academy of Social Sciences (CASS).

Wang Guogang and He Xuqiang, researchers with the CASS Institute of Finance and Banking, released their report on the capital market at the forum, which took place inBeijingon Friday.

Their report was published in the CASS quarterly Blue Book on the Chinese economy, one of the longest in the collection of 12 research papers.

Also on Friday, theShanghaiComposite Index shot up by 3.9 percent (or 135 points) to 3,584 points, despite two major falls since the beginning of the year one on February 27 and the other on Thursday in anticipation of central government concern that the economy may be overheating.

But despite the increasing likelihood of Beijing introducing more measures to slowGDPgrowth (11.1 percent per annum), general economic conditions will remain favorable to investors, the two CASS economists said.

As the government pursues "good and fast" economic growth, Chinese listed companies are more likely to see high profits, providing solid support for their stock prices, Wang and He said. Their view was shared by fellow CASS economists Li Yang and Peng Xingyun in their joint report on the financial system.

The market is awash with capital and the excess liquidity is unlikely to be significantly reduced despite the central government's attempt to slow down growth, they said.

In the meantime, therenminbirevaluation process will continue and international investors will see a double incentive to pursue the domestic A-share market.

But the researchers acknowledged risks still exist for investors, with the price-to-earnings ratio of the Chinese market hitting 40 much higher than the average level of other stock markets.

Chinese investors seem undeterred. The nation's new stock trading accounts exceeded 90 million on Thursday, according to the China Securities Depository and Clearing Co Ltd. This number is about 7 percent of China's population.

On Thursday alone, 634,000 new investors rushed to stockbrokers to open accounts. The previous day, 345,000 accounts were opened. So far this year 11.7 million new accounts have been opened, more than double the number for 2006.

(China Daily 04/21/2007 page1)