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Stock magnet for investors

By Li Fangchao (China Daily)
Updated: 2007-03-30 09:42

China's booming stock market has rekindled public enthusiasm in shares and funds, a central bank survey has found.

The main stock index yesterday rose to record highs for the seventh consecutive session as bank shares soared amid speculation of the launch of a futures index.

The benchmark Shanghai Composite Index closed 0.77 percent up to 3,197.53, extending this year's gains to 19.5 percent after rallying 130 percent last year.

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The People's Bank of China survey polled 20,000 residents in 50 cities across the country, and solicited their opinions on the stock market, income, housing and prices.

Though nearly 60 percent of the respondents said bank deposits are still their most important financial assets, their relative importance is the lowest since the central bank first released the report in 2004.

Low interest rates and the "clear effects" of the booming stock market played a key role in changing peoples' perceptions, it said.

Funds accounted for a historic high of 16.7 percent of residents' holdings of financial assets in the first quarter of the year, up from 10 percent in the previous quarter, the survey showed.

Nearly a third said it is worth buying stocks or funds given the current interest rates and prices, a nearly 12 percent increase over the last quarter.

Nearly 60 percent believed the interest rate is low, an increase of 3.2 percentage points from the previous quarter. The benchmark one-year deposit rate stands at 2.79 percent after a 0.27 percentage point rise two weeks ago.

But the real interest rate is actually negative, given the rising inflation and a 20 percent tax on interest. The consumer price index, a key indicator of inflation, surged 2.7 percent in February.

An investor monitors stocks at a securities trading house in Zhengzhou, Central China's Henan Province, March 29, 2007. [newsphoto]

"The trend (toward stocks and funds) is clear," Wang Xiaoguang, a Beijing-based senior economist, said.

"But we can't cite any survey as a guide or encouragement for more people to rush for gold into the stock market.

"To follow like sheep in the stock market can be risky."

The survey also found that, despite a sharp increase in income, the majority of people were concerned about high consumption prices 37 percent said that incomes rose, a high for the past six years.

But nearly 90 percent believed that the prices are "too high" or "a little high".

The pinch is being felt more by low-income earners, with a monthly income less than 2,000 yuan ($259) in the urban areas, the survey said.

The survey also found that middle- and high-income earners in major cities are not deterred from planning to buy homes despite interest rate hikes.

(China Daily 03/30/2007 page1)