For years, China's stock market was an anomaly: the economy was going one way
up and it was going in the opposite direction.
This year, it seems it can't wait to catch up gaining a staggering 94 per
cent and becoming one of the best performing markets in the world in 2006 mainly
because of successful security reforms.
Yesterday, the market hit a historic high: the benchmark Shanghai Composite
Index rose 1.15 per cent to close at 2249 points, passing the previous intra-day
high of 2245 on June 14, 2001.
Turnover of Shanghai A shares was a heavy 36.88 billion yuan (US$4.67
The Shenzhen Composite Index yesterday closed at 6044.28 points, up 71.80
points from the previous day. It has more than doubled since the beginning of
"Factors like the steadily growing economy, a series of reforms in the
capital market, and massive capital inflows into the mainland will see the stock
market embracing a 'golden decade'," said a report in Shanghai-based Orient
Securities. "The index is expected to break 3000 points in 2007," it added.
In May last year, the central government embarked on an ambitious reform to
convert non-tradable shares worth as much as US$250 billion to tradable ones.
"Now for the first time, the stock market is able to reflect China's booming
economy. It proves the ongoing securities reform has fundamentally changed the
stock market from a gambling house to a normally functioning market based on
true value", said Li Yongsen, a professor at Renmin University of China.
With the bulls clearly on the ascendant, analysts point out that massive
inflows of new money into the market make it hard to foresee when the rally will
"With such excessive liquidity, the index is likely to continue to climb, and
there is no clear sign it will end in the short term," said Zhang Qi, an analyst
with Haitong Securities.
The rise of A shares yuan-denominated mainland stocks has tempted many blue
chips originally listed overseas to come back to the home market.
China Life Insurance, the nation's biggest life insurer, has applied to issue
A shares worth as much as 25.5 billion yuan (US$3.23 billion) in Shanghai. The
offer will likely make the company the second largest public offering in the
A-share market after Industrial and Commercial Bank of China, the country's
The bullish market has allowed many ordinary Chinese to share the profits
from the economic boom for the first time.
"The rise is just crazy. Many of my friends have doubled their money by
investing in stocks or mutual funds this year. I also want to put some money in
the market," said Li Yan who works for a law firm.
(China Daily 12/15/2006 page1)