The rush is on to get on the bourse
By Xin Zhiming, Fei YaUpdated: 2007-02-08 10:11
It was not until one and half years ago when the market began to amend its trading rules, did we see a rise in the index.
But with some investors reporting good news with their stocks and the renminbi gaining value in the last few weeks against the US dollar, any investment in the Chinese market, if lucky, may generate a double return when calculated in dollar terms.
It is not only domestic investors who are rushing to sign up with the various mutual funds. Plenty of international money is ready to jump on the Chinese bandwagon as well.
Economists and analysts say while the overall economy is in a basically healthy state and stands a good chance of growth, there are also a few things that the regulators must do, sooner or later, to keep the stock market stable.
No international investment bank is arguing about the growth prospects in macro-economic terms. But many analysts fear a market that is rising too strongly too soon.
The economy's soaring growth will be a premium for the Chinese stock market, analysts agree. The proposed merging of tax rates for domestic enterprises and those for foreign investment enterprises, by requiring the domestic companies to pay less tax, is also likely to result in a company's greater profit margin.
But the average price-to-earning ratio of the Chinese market had risen 26 times by the end of 2006, compared with 17 times in 2005.
Also, the lack of corporate governance and loopholes still to be plugged in the financial industry, also prevent China from becoming an ideal destination for investors to seek long-term interests, as Wu Jinglian and a number of prominent economists points out.
To avoid a stock market bubble, according to Li Yongsen, a financial specialist with Renmin University of China, it would be necessary to have some corrections, meaning dips in the index, from time to time. And "if the market must have corrections, it is better to have them sooner than later", he said.
The China Securities Regulatory Commission (CSRC) has been introducing more
and more new policies and regulations.
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