| Hi, I'm a foreigner, leaving in Shanghai and who invested on Shanghai Market. On a mid-long term perspective, Chinese companies will undoubtedly continue to grow. First because the Chinese economy is growing 10% a year. Secondly, because those Chinese companies are also gaining market shares all over the world. So, I really don't think there is a risk to invest in China if you have a 3 to 5 years perspective. On the short-term though, the maket is overheated. As Twang pointed out, there are very few investment opportunities for Chineses. The real estate market captured most of the investment in the last 5 years, but the recent regulations imposed by the central government to cool down real-estate have been quite effective, limiting growth to 20% in some cities or even a decline (-2%) in Shanghai. Therefore, all this money is now invested in the stock exchange, specially since the end of 2006 (+30% in 2months since december 1st). People are really buying like they buy the lottery, without much financial knowledge. The more they win, the more they buy, pushing the stocks even higher. There will definitely be a moment when the market will correct itself. But I don't think it will explode like the New-economy bubble, because, as I said, the growth of Chinese companies is real and solid. It will gradually slow-down or decline a bit in the coming months, but nothing much more. The government still has a very strong hold on the economy and won't allow things go out of range. One other factor, specific to the Shanghai and Shenzhen market, is that it is controlled by a handfull of large funds who don't play the market that fairly. I read a report from 2004 explaining the extreme intra-day volatility of the market by the fact that some funds made some operations between each other at the beginning of the day to set the trend for small share holders, and then buy-back or sell a few hours later. Although the market has become much more transparent since 2004, I still think it's very risky to be an individual share holders. So if you go for one of those large chinese fund, you limit your risk. My advice is to wait a few weeks before buying, and go with a large fund. |
Chinese Stock Market is Crazy