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China Stock Market

2007 China Stock Market Recap

In 2007 the Chinese market almost tripled in value and was noted as the fastest growing economy in the world. Many financial experts discussed the possibility of the China Stock Market existing in a massive stock market bubble similar to that of the dotcom boom. The stock market in China was seen as being “too hot” and as having many characteristics of a bubble about to burst.  In fact, after analyzing stock market indexes, china’s main stock index trades were at more than fifty times the projected earnings of the companies listed on it. This amount was almost triple that of the major U.S. and European stock markets. The Chinese Stock Market also has had many stock market listings and in the third quarter of last year, hosted 75 share offerings. The China Banking Regulatory Commission began to investigate whether individuals were using loans for cars or houses for stock market investing and banking regulators were also researching the possible use of credit cards to fund share purchases.  Financial experts of the China Stock Market explained that the China’s market could not be judged by the same standards as any other stock exchange. It was explained that the China market is a closed system and is not a normal market so there is not bubble to burst. (There are strict investment rules that forbid the Chinese from putting their savings in overseas assets, thus leaving the Chinese Stock Market the only option).

There were some Chinese experts on stock market analysis that believed that the China Stock Market bubble fears were exaggerated. They believed that after the recent rise in stock prices, that there would not be room for further increases. Therefore the current price level of the market would not be facing a serious problem of overvaluation. The China Stock Market still has severely strict rules in that they restrict foreign participation. Foreign individual investors can only buy limited quantities of “A Share” when purchasing foreign stocks, and overseas companies are barred from listing on them.  The Chinese markets still exists mostly to raise money for state companies. This is the reason they were set up in the first place in the 1990’s.

After a five-year slump from 2001, the sharp rise in the stock market last year prompted a fury in the mainland by retail investors. The country had to rebuild investors’ confidence after many scandals in the stock market game.  The Chinese government implemented many reforms to combat price manipulation and other common abuses of the China Stock Market. The Chinese government staked their legitimacy on maintaining an increase in economic growth. As a result of the many reforms, shareholders arrangements have improved and corporate disclosure requirements have strengthened.

Even though a bullish market cycle typically lasts from 17 to 24 months, China’s bullish cycle of 29 months is still predicted to continue in 2008. The Chinese economy is still growing rapidly and the earnings estimates of listed companies are predicted to exceed 20 to 30 percent in the year 2008. The China Stock Market may dip in the medium to short-term, but it is still nevertheless predicted to remain bullish.

Keep a watchful eye out if you interested in the China Stock Market. It is has been very exciting to watch and has kept many investors on their toes!


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