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Opinion / Liang Hongfu
Investor education now vital
By HONG LIANG (China Daily)
Updated: 2007-09-18 07:26
It is understandable for investors in China to believe that a healthy
stock market is one that keeps going up. Without any form of derivative
products for hedging in a downturn, money can only be made in a bull
market.
Based on that yardstick, the Chinese stock market, which has surged a
total of 100 percent, despite occasionally faltering, since the beginning
of the year, must seem to be in robust health even to the most adroit
investors. But behind that facade lurks a myriad of discrepancies and
irregularities that can, if not addressed in time, wreak havoc on the
capital market.
The symptoms of excess are becoming increasingly apparent as the market
continues to scale new heights. Listen to Shang Fulin, chairman of the
China Securities Regulatory Commission, or CSRC.
At a recent investor conference in Beijing, Shang listed various stock
market "abnormalities" to illustrate the "accumulated" risk that has been
ignored by so many investors. What seemed to irk Shang most was the
"immoral" practice of some particularly aggressive stock brokers in
encouraging students to punt on the stock market with allowances from
their parents. "What capability do these students have in taking risks?"
he asked, rhetorically.
Such "capability" appears to have eluded many adult investors, who
obviously believe that the market is going only one way, up. How would it
otherwise be possible to justify the average of about 200 percent premium
on the issue price of the 77 IPO shares this year on the first day of
trading? The premiums on many IPO shares after their market debut were
too high, according to Shang.
In the madding rush for scripts, many investors have become so gullible
that even corporate wall flowers with decidedly mediocre performances
could be transformed into stock market darlings overnight with the magic
wand of so-called "restructuring", which, in many cases, merely involves
the injection of some dubious assets that have little intrinsic value.
Under the banner of corporate restructuring, the share prices of some
low-quality stocks have risen to unrealistic levels, Shang said.
To be sure, the bull market is underscored by a robust economy, plentiful
supply of liquidity and sterling performance of the major corporations.
But speculative fever is widely seen to be playing an increasingly
dominant role in driving the stock market frenzy, continuously fed by
disinformation spread by the unwary financial media among the susceptible
investment public.
It has been said, even by some of the most respected research
establishments, that the number of newly opened stock investment accounts
is a reliable indication of the stock market trend. But the credibility
of that number is suspect as more and more sham accounts are manufactured
by agents of stock broking firms to meet their ever demanding business
quotas.
In many ways, China's securities rules and regulations are no less
stringent than those in many relatively more matured capital markets. But
investigations into market malpractices, such as insider trading and
share price rigging, have proved to be problematic. Willing destruction
of evidence by companies under investigation is a "serious" issue,
according to Shang.
Under these circumstances, it is imperative to educate the investment
public to raise their awareness of the market risks. In Shang's view,
investor education is a long-term, systematic task that must be
undertaken with persistence and perseverance.
The purpose of investors' education is to help investors to make informed
decisions. There is never the intention to use investors' education to
"depress" the stock market, Shang said.
E-mail: jamesleung@chinadaily.com.cn
(China Daily 09/18/2007 page10)
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