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BIZCHINA> Top Biz News
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Disney dream over for speculators
By Andrew Moody, Li Xiang and Zhou Yan (China Daily)
Updated: 2009-11-09 07:45  Now that Shanghai Disneyland has been given the go-ahead, many will be asking the question whether others will make as much money from the $3.6 billion project as has already been made by market speculators. Few potential projects could have been so subject to frenzied market activity as the prospect of Mickey Mouse and his friends arriving on Chinese mainland soil. Any latest intelligence on whether the Chinese government was or was not going to give the theme park its approval could be guaranteed to unleash furious market activity. Stocks that could benefit from the project experienced often unusual movements in their share prices, with many investors undoubtedly profiting as a result. Many believe some of the snippets of news that often seemed subtly placed in the media had all the authenticity of a Disney fairy tale. But whether the market was just vulnerable to rumors, or people or groups of people were deliberately manipulating the market on a huge organized scale, might never be known. Certainly, some people got very rich from all the millions of yuan staked on mysterious and often inexplicable share movements. Tu Jun, an analyst with Shanghai Securities, said the proposed Disney park was a dream come true for speculators. The combination of a world-famous brand with only vague details about the actual project provided a perfect vehicle around which to create rumors and counter-rumors in order to make lots of money, he said. "This type of speculation is usually very sensitive to related news reports and events. It is not so much the reality, but the expectation that spurs market reaction," Tu said. Tu said there have been other examples around the world, although few to match this scale. "The phenomenon is quite common in the markets. We call it thematic investment or speculation," he said. A wild ride Some of the wildest fluctuations in the market were witnessed only a few days before last week's announcement by Disney and Shanghai's municipal government. On Oct 27, the Securities Times, a Shenzhen-based newspaper, carried a one-sentence report on its website saying that the Disney project had passed the verification stage set by the country's top decision makers and would soon be officially announced. This briefest of reports prompted a spectacular rally in the stock market only minutes after it was published.
Other companies with connections to the Disneyland concept such as Zhonglu Co Ltd (see Chart 2), Cimic Tile Co Ltd (see Chart 3) and Lujiazui Co Ltd, also soared by the same amount, while the benchmark Shanghai Composite Index fell by 2.83 percent to 3021.46 on that day. These were among the last volatile oscillations in a whole catalog of, at times, difficult to explain movements dating back to 2006, when the first reports of a Disney theme park began to emerge. Zhonglu and Jielong have been at the center of much of the speculation. Zhonglu saw a consecutive rise in its stock price of 10 percent for nine days in November 2008. Not everyone has been happy about these strange and volatile movements with small investors, in particular, often finding themselves on the losing end of market activity. Huang Feng, an investor based in Shanghai, said he now finds it too much of a fairground ride to hold his Disney-related related stocks any longer. He invested 300,000 yuan ($44,000) on Oct 12 to buy 30,000 shares of Xiamen Prosolar Real Estate Co, which runs a villa project close to the expected site for Disneyland. Soaring shares "Its shares surged at a pace beyond my expectation," said Huang, who works for a publishing company in Shanghai. He sold his holding on 0ct 22, when the stock had made a return of 17.4 percent, fearing any gain would be wiped away in the next speculation. "I was so scared about its growth rate at that moment. I felt the risk was too high to continue holding it," he said. At times during the three-year saga of speculation surrounding the project there have been some highly unusual movements in share prices On May 15 this year, Jielong's price was frozen in a straight line at 15.4 yuan for 70 minutes, suggesting to some that there were unusual forces at work manipulating its price. "It is very likely that a number of accounts were manipulated by speculative investors at the same time to avoid regulator investigations," said Li Ran, a 26 year-old investor who works for a securities firm in Beijing.
Daryl Guppy, a leading trend analyst who is an expert on market movements and a keen watcher of Chinese markets, said the pattern was unusual, but he doubted there was manipulation on this occasion. "Sideways movement on high volumes shows agreement about the value. It's common in a market that is waiting for a news release. It is like the calm before a storm, " he said. Volatile cocktail Guppy said the Disney project and the often-erratic nature of China's stock markets were always going to be a volatile cocktail. "The patterns have been unusual, but not dramatically out of the ordinary for China trading," he said. Guppy believes some of the sudden movements in share prices, as highlighted by the share graphs, were classic examples of rumor speculation. He points to the behavior of Zhonghlu's shares when it rose 10 percent a day for nine consecutive days from Nov 19 2008. "The chart-1, chart-2 and charts-3 show a clear correlation of the Western idea of 'buy the rumor and sell the news'. There was a fairly standard price and volume (of shares traded) rise taking place. People becoming increasingly aware of the potential of the rumor," he said. Guppy said the whole saga of the Disney speculation created perfect opportunities for arbitrage, where investors can take opportunities between price differentials between markets. (For more biz stories, please visit Industries)
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