China fund managers see high risks in small stocks

Thu Apr 19, 2007 1:09am ET ,

Key Points :

 

1. China's A-share market is overheated, as evidenced by a recent relentless surge in small-cap stocks.
   
    

2.      Benchmark Shanghai composite index's <.SSEC> 32 percent gain this year was largely fuelled by a frenzy of speculative buying of shares in small companies with poor earnings records but bolstered by rumours that their assets would be restructured.

 

3.      A shares of 753 listed companies, or more than half of all stocks floated on the exchanges in Shanghai and Shenzhen, have doubled this year.

4.      The surge is reminiscent of the late 1990s, when nearly all China-listed third-tier stocks went through the roof on speculation of asset restructuring, before falling back sharply.

 

5.      The first-quarter results of 96 Chinese mutual funds showed they had cut their stock positions to 80.2 percent, from 83.36 percent in the fourth quarter, with financial and property bearing the brunt of selling.

 

6.      Fund managers said that did not mean they were souring on those blue-chips. They were forced to sell down those stocks, which are more liquid, to meet redemptions from retail investors, who raised money to buy new funds.

 

7.      "Third-liners will undergo a sharp correction this year because the bubble is getting too big.  said Zhu Ping, chief investment officer of GF Fund Management Co.

 

8.      The Shanghai composite index fell 2.39 percent on Thursday morning ( 19 Apr 07 ) on concern that March economic data, due to be released after the market's close, might show an overheating economy and prompt the central bank to hike interest rates.

 

9.      Fund managers said the massive rally among small-cap stocks this year was mainly propelled by retail investors, who are swarming into the stock market following a 130 percent gain in the Shanghai composite index in 2006.

 

10.   Chinese investors opened 1.14 million stock accounts in the past five trading days, state media said, surpassing the number opened in the whole of 2005.

 

11.   Phone banking systems also crashed at several Shanghai banks on Monday due to heavy demand from users who scrambled to transfer deposits to their stock accounts, the Shanghai Securities News reported.

 

12.   China International Fund Management said last week it had received nearly 90 billion yuan in subscriptions to its new equities fund in a single day -- more than 10 times its original sales target.

 

For more detail, see per below website :

 

http://yahoo.reuters.com/news/articlehybrid.aspx?type=comktNews&storyID=urn:newsml:reuters.com:20070419:MTFH05611_2007-04-19_05-09-50_SHA16141&pageNumber=0&imageid=&cap=&sz=13&WTModLoc=HybArt-C1-ArticlePage3