Thursday, October 11, 2007

Chinese Stock Market

Among the reasons I've been so quiet here lately is the very volatile stock market, particularly Chinese stocks, which have been so crazy that they've occupied all of my time and energy (for those not aware of it, I day-trade full-time). This article provides some insight into what appears to be a developing mania:
Taking advantage of soaring Chinese stocks -- the Shanghai Stock Exchange index has doubled in value this year -- individual Chinese investors have opened 28 million new securities brokerage accounts in 2007, compared with three million in 2006. Many more retail investors trade over the Internet.

At the Industrial Securities branch mid-rise office building in Fuzhou, three floors are devoted to the activities of day traders. On the top floor, there are 34 private rooms for the wealthiest traders, those with active accounts worth 5-million RMB (about $700,000) or more. Each room contains a trading screen, a couch, paraphernalia for making tea and a television. They are all full.

One floor down, clients with between a half-million and 5-million RMB ($70,000 to $700,000) sit in row after row trading stocks on computer screens as they eat take-out food. On the ground floor, where the smell of smoke and greasy food permeates, more day traders -- those with less than a half-million RMB -- sit haphazardly on benches and stand around or play cards.

[...]

There are thousands of day-trading setups like this one all over China. The country's growing ranks of individual investors are a big problem for mutual fund sellers, whose products offer lower returns than the runaway stock market.

"Expectations are based on short-term memory," says Bruno Lee, head of wealth management for HSBC bank in Asia.

"[Chinese investors] think that if you invest in the stock market you should get 50% to 100% returns. It's very tough [for wealth management companies] because customers say you must be crazy if you introduce a product with an expected return of 10% to 15% per annum. They think that's a pretty bad investment."

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