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Old 28th June 2007, 08:22 AM
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"There's no way the government would let the stock market crash.''

The Chinese has been so used to the government controlling everything....so everyone believes the stock market can be controlled....

Sounds familiar?


http://bloomberg.com/apps/news?pid=2...1yQ&refer=home

China at 45 Times Earnings Fed by `Herd Mentality,' Government

By Le-Min Lim and Zhang Shidong
Enlarge Image
Wu Ruiling, a 68-year-old former grade-school teacher

June 28 (Bloomberg) -- High above Shanghai, in an office reserved for stock market barons, Xu Yongyi swirls a flask of coffee, only breaking his rhythm to explain why money matters.

``It's not about being rich,'' asserts Xu, a 43-year-old former factory worker who says he turned 16,000 yuan ($2,100) into 5 million yuan by trading shares. ``I want to rise above the masses and prove I'm a step ahead.''

Thirty floors below in the public trading room of Shenyin & Wanguo Securities Co., Xu's ascent inspires investors who sit at rows of boxy computer screens studying stock graphs and swapping tips. Former grade-school teacher Wu Ruiling, 68, recalls the days when the man she knows only as Dahu, or ``Big Account,'' would expound on stock-price movements over box lunches.

``We look up to him,'' Wu says. ``He analyzes the market so thoroughly; that's why he's so rich now.''

Aspiration and envy are key emotions driving China's stocks boom as investors ignore warnings of a growing bubble to pursue quick riches and gain respect from friends and neighbors. Rapid recoveries from two government-triggered sell-offs this year have deepened investors' belief that the market is immune to a crash.

Traders such as Xu are role models. In a year when China's benchmark CSI 300 Index has doubled, Xu says the value of his shares, which include China's biggest sock maker, Langsha Group, have almost tripled. That earned him an upgrade from a ground- floor booth to the 30th-floor VIP room -- exclusive to those with portfolios of 5 million yuan or more.

Life Changing

``The stock market doesn't care who you are or where you come from,'' says Xu, spinning in a swivel chair in the sparsely furnished office he shares with another large account holder. ``If you call the market right, you win.''

Winning has changed Xu's life. In the 1980s he earned 45 yuan a month making television casings at a state-owned factory; now he owns a 29-inch color TV. For years, he lived in an old 50- square-meter apartment; last month he paid 1.3 million yuan for a 129-square-meter (1,388 square feet) condominium on the outskirts of the city.

That's a long way from his childhood during the Cultural Revolution of the 1960s and '70s, when the streets of Shanghai teemed with people in uniform blue, green and gray jackets.

``Everyone looked the same, spoke the same way and got the same pay,'' he says. ``Factory workers hung around to collect pensions.''

By the 1990s, Shanghai began responding to top leader Deng Xiaoping's call for faster economic growth, developing a new commercial center, and promoting entrepreneurship and share sales to catch up with Hong Kong and rapidly growing southern cities such as Shenzhen.

``Big Pot of Rice''

Xu jumped into the private economy, working as a bus driver and buying stocks for the first time. Today he is shopping for a 100,000-yuan Nissan Tiida compact and planning to send his 13- year-old daughter, Runru, to study in the U.S. after high school.

``For a long time, everyone ate from the same big pot of rice regardless of how much or how little they did, obliterating their sense of achievement,'' says Shi Junqi, a psychologist specializing in consumer behavior at Peking University. ``Stock- market investment helps restore that.''

Unlike business people who amass wealth through political connections and corruption, successful stock traders are respected for winning on their own merits, Shi says.

Such is China's investing frenzy that an average of 300,000 stock-trading accounts have been opened every day since April, according to China Securities Depository & Clearing Corp. Trading by individual investors accounts for about 60 percent of market volume, estimates the Shanghai-based brokerage Guotai Junan Securities Co. In the U.S., individuals account for only 5 percent of trading as institutional investors dominate.

Soup Shop Dream

Since a four-year bear market ended in the third quarter of 2005, the CSI 300 has quadrupled. While the index fell as much as 16 percent the week of May 30, after the government tripled a share-trading tax, all the losses were recouped by the close of trading June 18. The index has fallen 1.4 percent since then because of concerns the central bank would raise interest rates.

At Shenyin & Wanguo Securities, human-resources consultant Guan Fengxian checks her stocks at one of the terminals small investors line up to use. Nearby is a chef from the adjoining restaurant and the building's cleaning lady. Guan, 30, says her dream is to make enough money to open a soup shop with two friends -- and quit her job.

Guan opened her trading account in early June, during the market sell-off. She bought 1,000 shares in Hunan Valin Steel Tube & Wire for about 7 yuan apiece; they have risen to 9.18 yuan. Guan says she's waiting to plow an additional 160,000 yuan, most of her savings, into the market.

``I'm not afraid,'' says Guan, tightening her clutch on a pink Mickey Mouse wallet. ``Our economy is doing so well; nothing could possibly go wrong, right?''

Foreign Vultures

Such confidence defies warnings from former Federal Reserve Chairman Alan Greenspan and Hong Kong billionaire Li Ka-shing who last month said shares were too expensive.

Xu says he ignores such comments from abroad.

``These foreign interests want to get in on the action themselves but can't because the market has risen too much,'' he says. ``That's why they are talking down the market, so they can swoop in and pick up some cheap stocks.''

Government support for the stock market is guaranteed because it is selling state-owned shares to pay for future pension obligations and education programs, Xu says.

``If we take a beating in the stock market, the government takes a beating too,'' he says. ``There's no reason the government would want to smash the stock market.''

Trading Strategy

Xu mostly buys shares of listed companies in which the state is reducing its holdings. He recently bought shares in papermaker Heilongjiang Black Dragon Co. and fertilizer-producer Heilongjiang Sunfield Science & Technology Co., betting on big price gains when trading resumes.

Chinese shares are among the most expensive in the world, trading at about 45 times reported earnings. By comparison, shares trade for an average of 17 times earnings on the Hang Seng Index in Hong Kong and 18 times on the Standard & Poor's 500 Index in the U.S.

Only Chinese nationals are allowed to buy yuan-denominated shares traded in Shanghai and Shenzhen, except for 52 authorized foreign money managers that are allowed to invest a combined $10 billion in Chinese stocks, a fraction of the nation's $2.27 trillion market capitalization.

``Herd mentality prevails in Chinese society,'' Shi says. ``If they see everyone around them -- neighbors, friends and colleagues -- trading stocks, they would want to follow.''

Ironically, government-triggered market declines may provide the impetus for future surges.

Chastened by Declines

``With each plunge, investors become more immune to market volatility,'' says Yao Maogong, chief trader at Shanghai Securities Co. ``Chinese investors don't pay much attention to ratios; as long as the market trends up, they think it's safe.''

Some Chinese investors are chastened by the recent sell-off. Retired school teacher Wu had ``tens of thousands'' wiped off her portfolio. While she hasn't sold stocks, Wu has stopped buying and talks gravely of the stock-market plunge in 2001 that cut the value of her holdings in half.

``The market looks good but it may turn on a dime,'' says Wu, a slight woman who is trying to expand a retirement nest egg that has grown to 600,000 yuan. ``New investors that keep piling into the market are like new-born calves that don't fear tigers; we know what to fear.''

Still, investors like Xu and Guan insist things are different this time. The current Chinese leadership under Premier Wen Jiabao knows the country needs a viable stock market to fund social services and allow companies to raise money, Xu says.

Xu says: ``There's no way the government would let the stock market crash.''

To contact the reporters on this story: Le-Min Lim in Hong Kong at lmlim@bloomberg.net Zhang Shidong in Shanghai szhang5@bloomberg.net
Last Updated: June 27, 2007 17:17 EDT
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Old 28th June 2007, 04:50 PM
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Re: "There's no way the government would let the stock market crash.''

I made some money off the market but at this point domains and poker are a safer gamble.
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Old 28th June 2007, 05:11 PM
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Re: "There's no way the government would let the stock market crash.''

If you talk about IDNs, there's also an awareness and technological factor attached to it. It's like investing in domains before Netscape.

As for awareness, try conducting a survey on IDNs on the streets.
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Old 28th June 2007, 05:16 PM
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Re: "There's no way the government would let the stock market crash.''

Yes, well obviously written by somebody who doesn't understand markets.

P/E's vary widely according to prospects of stocks. Blue Chips that are trudging along reliably year after year have low P/E's as they behave much like bonds.

Innovative cutting edge firms that are likely to double or triple earning in the next couple of years have much higher P/E's.

Start ups that are hardly turning a profit but with massive prospects can have PE's going off the charts.

All of these values can be equally valid and co-exist.

Nobody really knows but I do not understand why people would find a P/E excessive.

If people are happy with an annual return of 10% then a P/E of 10 is reasonable.

A P/E of 45 indicates a current return of 2%, but if that 2% is going to rise to 5-10% next year and possibly 20-30% the following year, then it looks likes a sensible investment to me.

People who talk such nonsense without any clear understanding of the fundamentals often call themselves analysts.
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Old 28th June 2007, 05:54 PM
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Re: "There's no way the government would let the stock market crash.''

"When black friday comes
I'll stand down by the door
And catch the grey men when they
Dive from the fourteenth floor..."
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Old 28th June 2007, 07:38 PM
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Re: "There's no way the government would let the stock market crash.''

Quote:
Originally Posted by xxbossmanxx
I made some money off the market but at this point domains and poker are a safer gamble.
What does this have to do with the story of the stock market in China? Why are you promoting your poker playing again?

 
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Old 28th June 2007, 07:50 PM
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Re: "There's no way the government would let the stock market crash.''

Heres blast to taint another thread. Hey loser, I stated my opinion of the markets, totally relavent. Your post however is more junk aimed towards another long thread of crap.

Drewbert posted a rhyme, gimme a break trying to single me out and start something. Man this guy is an asshole.
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Old 28th June 2007, 08:21 PM
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Re: "There's no way the government would let the stock market crash.''

Quote:
Originally Posted by xxbossmanxx
Heres blast to taint another thread. Hey loser, I stated my opinion of the markets, totally relavent. Your post however is more junk aimed towards another long thread of crap.

Drewbert posted a rhyme, gimme a break trying to single me out and start something. Man this guy is an asshole.
Blast is a cool dood :-)

Perhaps you could ask Olney to start a poker forum if you really feel the need to constantly plug your poker... Good idea, two new forums: "Poker - nothing to do with IDNs", and "Senegal".

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Old 28th June 2007, 08:24 PM
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Re: "There's no way the government would let the stock market crash.''

I was hoping to read this: ``These foreign interests want to get in on the IDN action themselves but can't because the market has risen too much,'' he says. ``That's why they are talking down the market, so they can swoop in and pick up some cheap domains.''
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Old 28th June 2007, 08:35 PM
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Re: "There's no way the government would let the stock market crash.''

Ok, so you are his buddy, are you the only scripts guy from skype, makes perfect sense. Maybe olney could have 2 forums, one with real threads and another where people like blast flame everbody up.
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Old 28th June 2007, 08:44 PM
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Re: "There's no way the government would let the stock market crash.''

Quote:
Originally Posted by xxbossmanxx
Ok, so you are his buddy, are you the only scripts guy from skype, makes perfect sense. Maybe olney could have 2 forums, one with real threads and another where people like blast flame everbody up.
Heh! I'm just sayin, man, people here don't seem to be interested in your poker business, but that doesn't stop you from repeatedly bringing it up. How about some relevant discussion once in a while? How about posting some domains for auction?

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Old 28th June 2007, 09:06 PM
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Re: "There's no way the government would let the stock market crash.''

I am not trying to be a jerk, if you look at my posts I always have something friendly to say (unless I am being flamed) and I try to contribute.

I have sold and bought many domains here. I have never tried to purposely plug my poker domain, I have like 14 sites and this one is my hobby for fun site where I can try to express all of my forms of web dev. on one site. Sorry if I talk and refer to cards too much, making a joke about the market is all, about how the market can be a gamble.
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Old 28th June 2007, 09:10 PM
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Re: "There's no way the government would let the stock market crash.''

Quote:
Originally Posted by xxbossmanxx
if you look at my posts I always have something friendly to say
Quote:
Originally Posted by xxbossmanxx
asshole.
Quote:
Originally Posted by xxbossmanxx
I am not trying to be a jerk
Priceless.

Last edited by blastfromthepast; 28th June 2007 at 09:27 PM..
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Old 28th June 2007, 09:23 PM
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Re: "There's no way the government would let the stock market crash.''

Ya just skip the unless I'm being flamed part. Like I have said before. You are nothing but a menace to this site.
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Old 28th June 2007, 09:25 PM
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Re: "There's no way the government would let the stock market crash.''

Quote:
Originally Posted by xxbossmanxx
I have never tried to purposely plug my poker domain, I have like 14 sites and this one is my hobby for fun ... bla bla bla bla...
You just can't shut up about poker can you?

Hey, we come here to read about IDNs. We don't care about your poker sites, nor do people care about how you have a fetish for me. Get over it and move on.

Last edited by blastfromthepast; 28th June 2007 at 09:46 PM..
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Old 28th June 2007, 09:40 PM
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Re: "There's no way the government would let the stock market crash.''

Quote:
Originally Posted by blastfromthepast
I'm some kind of socipath that loves to get people worked up. I dont really contribute anything here I just like to flame threads.
Please STFU
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Old 28th June 2007, 09:44 PM
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Re: "There's no way the government would let the stock market crash.''

Look kid, you got a problem with me? Send me a PM. I love getting fan mail.
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