25/04/2015 01:59 AST
In the front office of a Beijing stockbroker, Mrs Wu and her daughter waited for hours this week to open the family’s first equities trading account.
The family has scrapped together 300,000 yuan ($62,000) over the past year and was ready to become one of the thousands of people across China who each week enter the mainland equities market for the first time.
The Shanghai Composite Index has rallied nearly 119 per cent in the past year, while the Shenzhen Composite is up 113 per cent, making the two boards the best performing major indices in the world.
But with the rally showing no signs of ending, concerns are growing that the Chinese sharemarket has become overvalued, and that a damaging bubble, similar to the property market, is emerging in equities.
The China Securities Regulatory Commission estimates a record 3.26 million equities trading accounts were opened between April 13 and 17, up nearly 100 per cent on the same time last year.
The surge came after the central government introduced a puzzling measure that investors could now operate up to 20 separate accounts compared to just one in the past. There are now 198 million mainland market trading accounts, which regulators believe shows there are at least 100 million individual investors.
For Mrs Wu, who sat with her five-year-old daughter in the China Merchant Securities office in Beijing, the opportunity to become an investor was too good to refuse, despite the risks.
“I have just opened an account and invested 300,000 yuan,” she told The Weekend Australian.
“I don’t know much about the stockmarket, but my friends have made a fortune recently and they can give me some advice so I must seize the chance.
“I have been worried about some of the risks, but my friends have told me that the bull market is going to stay in place for a few more months, so hopefully I can make some money.
“One of the hot topics between my friends lately has been whether they should sell their houses to buy stock or should we be using money that we make in the market to buy houses.”
The rush of money heading into the mainland sharemarkets shows no sign of ending, despite warnings from regulators over valuations.
The CSRC has issued a number of pointed warnings, mostly on its Weibo site, telling people not to dive into the market in an uneducated fashion.
However, the daily turnover on the Shanghai Composite hit 1.15 trillion yuan this week, the highest ever.
Another investor, Mr Lu, has been watching the market surge for the past year and decided this week to invest 1 million yuan into stocks.
“I opened my account before but the market was not good so I had not activated it,” he said.
“Now personal investors are allowed to have a number of accounts and I think the bull market will last for a while. I have been waiting here for about two hours and there are lots of people opening accounts.
“I stopped buying stocks a while ago but recently the performance of the market has been so good, I have decided to restart again.”
Mr Lu said he believed that the government would put in place measures to back the market if the prospect of a damaging crash loomed.
The government has been slowly injecting stimulus into the nation’s economy, with the biggest move ordered last weekend, when the Reserve Requirement Ratio was slashed by 100 basis points.
The decision is expected to free up 1.3 trillion yuan worth of capital from the nation’s commercial banks, which the government hopes will be invested in lending. However, economists have warned there is a risk the money could be channelled into the equities market, which would further raise the risk of an bubble emerging.
Business Spectator
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