Speculative fervour in the Chinese stock market

November 29th, 2006

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In our previous article, Are you being ripped off by fund managers?, we mentioned, ?… China in the process of tightening liquidity to rein in the runaway economic growth, the gush of speculative money will dry up… We believe there are more falls to come as the Chinese government is in the process of curbing the excesses of the unsustainable asset price inflation.?

We would like to rectify that opinion.

In today?s Australian Financial Review, we read an article commenting that further liquidity is expected to drive up the Shanghai Stock Exchange. We checked out the Chinese Yahoo Finance and were dismayed to see the amount of speculative fervour and volatility in the Chinese stock market. Even business and national leaders were advocating ?investment? of shares. There were stories after stories of stock market ?success? and how ?investors? achieved wealth through share ?investment.?

Yes, we believe that eventually, the Chinese would have to tighten liquidity before inflation goes out of hand (there were some indications of their plan of doing so, but nothing concrete had been implemented). When that happens, we expect the stock market bubble to burst, if not deflate. In the meantime, with all these excess liquidity in the financial system, those punting and gambling activities will probably lead the stock prices higher with great volatility. The question is, when the party will end? We do not know the answer.

Anyway, the Chinese stock market is too strange and chaotic for us to understand.

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