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Beware of stock frenzy in Shanghai

By Chen Weihua (China Daily)
Updated: 2007-05-08 09:20

When the Shanghai and Shenzhen stock exchanges resume today after the week-long holidays, key indexes may hit record highs.

The Shanghai Composite Index, which closed at 3,841 on April 30, is likely to break the 4,000 mark today, analysts predict.

Rising share prices on the white-hot markets will further fuel the stock frenzy.

In the first quarter of this year, 4.78 million stock accounts were added on the two exchanges, dwarfing the 3.08 million new accounts for the whole of 2005.

In the first 27 days of April alone, some 4.5 million new accounts were added, many of them were small investors.

College students, many of whom have little or no income, have also become players.

Instead of traveling to scenic resorts, many investors and potential market players in Shanghai and elsewhere spent the May Day holiday buying books on stock investment and learning tricks of the trade.

Improved company performance, renminbi appreciation and the listing of some blue-chip stocks have contributed to the current bullish run.

But some analysts say excessive liquidity on the market poses a risk.

The price-to-earnings (P/E) ratio of many Chinese stocks is much higher than those in mature overseas markets.

Still, many investors believe the market will only go up. Domestic media outlets and market experts have been uncharacteristically quiet about the market's recent run.

However, foreign media and experts are spooked by the skyrocketing share prices on the mainland and warn of the bloating bubble.

It was urgent to shout out a May Day warning to the hundreds of millions of Chinese stock investors. Any possible damage later on would have been smaller had this been done sooner.