Stocks face investment bubble

The sharp fluctuation of two Chinese bank stocks in the past few days indicated that an investment bubble is developing among Chinese financial stocks due to the massive flow of funds into the A-share market.

With the exuberant performance of the stock market in 2006 attracting an increasing flood of funds into the A-share market, the market has grown massive enough for investors to begin seeking short-term profits by taking on blue chips when they used to speculate on comparatively smaller stocks.

This has caused the share prices of bank stocks to climb astonishingly high compared to their book value.