The Year the Piggies went to Market

There is much unrest in the market this evening, as the haze-glazed sun puddles into the Philippine Sea, West past Guambat's Tumon Bay burrow. With the Australian market consolidating its newest century mark at 6000, Guambat has become inured to the relentless advance of fair Australian investors, whelmed by the new market alchemy that has turned all market directions oneway -- up, to infinity and beyond.

The Oz Mkt has been an absolute ripper. See

this and this and this. Since its low of roughly 2700 about 4 years around ago, the market has gone virtually without correction up over 100%.

But that makes it a mere piker. As Market Oracle Marty Chenard points out, the (mainland, commie) Chinese market has risen over 200% in the last year and a half! His take on the consequences of that kind of parabolic run, for the Chinese market, is:

"Let me say this very simply ...

China's Stock Market will Crash sometime this year ."

As Marty points out, the LA Times recently ran a story on this capitalist-running-dog of a Chinese market. It's a story full of the anecdotes that Greenspan must have heard before he uttered his infamous, and famously early, comment, "irrational exuberance":

Millions of Chinese have entered the trading frenzy in the last year amid the strongest bull market in the nation's young capitalist history. The Shanghai composite stock index has doubled since August after four years of dismal performance.

Many individual investors have reaped handsome profits, but a growing number of them are tapping their credit cards and using their homes as collateral for cash to buy more stock, say bankers and analysts.

Such optimism may seem misplaced. Since China's stock markets opened 16 years ago, they have been plagued by scandals, the government's high ownership of shares and weak regulation. Investors have seen wild price swings and sudden collapses of fortunes. Just two years ago, the Shanghai index was languishing at 900.

But these days the mood is jovial.

"Look, look … how could this rise so high," shouted one elderly man, peering at a big electronic board at Wanguo Securities' trading hall in central Shanghai one morning this week.

By the opening of markets at 9:30 a.m., all 30 computer stations at the hall were occupied. Many people were standing in the lobby, laughing and telling jokes. One man slapped his thigh after watching a stock move up.

"I want to purchase more bank stocks and maybe tourism ones. People travel a lot during the holidays…. Maybe wine stocks too," said a man in his 60s who gave only his last name, Song.

Technically, day trading isn't allowed in China; investors can't buy and sell the same shares within 24 hours. But there are ways to get around that, and many investors are clearly in it for the short term.

Most analysts agree that the fundamentals are better than in the past. By one common valuation, the average share price is running about 30 times earnings; it was twice that during the last big boom in the '90s.

"A new generation of investors is appearing in China," said Zhang Qi, an analyst with Haitong Securities in Shanghai. "They are young people with better knowledge and understanding of the market. They use the Internet to research companies … and they are more confident."

Su Cheng, a 26-year-old native of Anhui province, jumped into the market last year. He plowed his entire savings into shares and then turned to his former classmates for more funds.

So far, Su has seen his investments soar 80% and now has about $13,000 in his stock account.

"My gain is not too bad until now, but my capital is still not enough," said Su, who works for a Shanghai investment and acquisitions firm. "If I had 1 million instead of $6,500, then I would have 2 million in my account now."

So what has made the market so nervous this evening?

China's Stocks Have Biggest Tumble in 10 Years; Vanke Plunges By Zhang Shidong and Yidi Zhao:

China's stocks tumbled the most in 10 years on concern the government will crack down on illegal investments that helped drive benchmarks to records.

The move was the biggest fluctuation among markets included in global benchmarks. The measure, which jumped 13 percent in the past six sessions, closed at a record 2707.68 yesterday.

Today's rout wiped out $107.8 billion from a stock market that doubled in the past year as 249 of the measure's 300 shares plunged by the 10 percent limit. China Vanke Co., the nation's biggest property developer, and China United Telecommunications Corp., which controls the nation's second-largest mobile-phone operator, declined.

The State Council, China's highest ruling body, has approved a special task force to clamp down on illegal share offerings and other banned activities in the market, the government said. The group will provide advice on regulations and policy explanations of the securities market, according to a statement published Feb. 25 on the central government's Web site.

The government must pay attention to "bubbles'' in its stock market before they get out of hand, Cheng Siwei, vice chairman of the Nation's People Congress, wrote in a commentary published Feb. 6 in the Chinese-language Financial News. The Congress next convenes for an annual meeting on March 5.

Stocks surged last year after a government plan to make more than $200 billion of state-owned stock tradable revived investor demand and paved the way for sales by some of the nation's biggest companies. The economy, which in 2005 overtook the U.K. as the world's fourth biggest, averaged annual growth of 9.6 percent in the past five years.

"China has gone up so much,'' said Winson Fong, who manages $2 billion as chief investment officer at SG Asset Management in Singapore. "It's not a bad thing to have a healthy correction as it provides an opportunity to correct over-valuations and allow people who have missed out to start buying.''

See Even commies have bubbles?