The Short View: Shanghai’s record
The Short View: Shanghai’s record
By John Authers, Investment Editor
Copyright The Financial Times Limited 2007
Published: July 26 2007 16:18 | Last updated: July 26 2007 23:18
Ironically, on the eve of the huge sell-off in the rest of the world, the Shanghai Composite index crept back to a record. China’s largest domestic stock exchange set a new high on Thursday, for the first time since authorities announced a new stamp duty on share transactions two months ago.
In the intervening period Shanghai stocks dropped 17 per cent, and took a break after doubling in six months. But, in spite of initial appearances, China has still not succeeded in its attempt to let air gently out of its stock market bubble.
These two months have, however, seen a sharp reduction in the discrepancies between Chinese A-shares, designed for locals, and H-shares traded in Hong Kong. At the time the stamp duty was imposed, the Shanghai Composite was up 55 per cent since the March correction, against 25 per cent for the FTSE-Xinhua H-shares index. Now, the H-shares are up 57 per cent. The discrepancy is largely removed.
Government restrictions prohibit a true arbitrage to exploit the difference in prices between the markets. But the narrowing of the gap suggests investors may be finding ways to bet on a convergence.
In spite of this, the Shanghai Composite is still driven chiefly by local retail investors’ enthusiasm – worryingly like the Nasdaq in 1999-2000.
For international investors, China remains a small market. The hotspot for international investors is Latin America.
According to Deutsche Bank, Brazil received the most inflows of any emerging country last month, with $900m, followed by Mexico with $541m. China, where funds are underweight, saw an outflow of $574m.
Brazil’s Bovespa index has set nine records since Shanghai’s previous high two months ago. It is the country in which emerging markets funds are most overweight, all without a compelling internal growth story. And as if to confirm that it was overheated, it has fallen 7 per cent in this week’s rout.
By John Authers, Investment Editor
Copyright The Financial Times Limited 2007
Published: July 26 2007 16:18 | Last updated: July 26 2007 23:18
Ironically, on the eve of the huge sell-off in the rest of the world, the Shanghai Composite index crept back to a record. China’s largest domestic stock exchange set a new high on Thursday, for the first time since authorities announced a new stamp duty on share transactions two months ago.
In the intervening period Shanghai stocks dropped 17 per cent, and took a break after doubling in six months. But, in spite of initial appearances, China has still not succeeded in its attempt to let air gently out of its stock market bubble.
These two months have, however, seen a sharp reduction in the discrepancies between Chinese A-shares, designed for locals, and H-shares traded in Hong Kong. At the time the stamp duty was imposed, the Shanghai Composite was up 55 per cent since the March correction, against 25 per cent for the FTSE-Xinhua H-shares index. Now, the H-shares are up 57 per cent. The discrepancy is largely removed.
Government restrictions prohibit a true arbitrage to exploit the difference in prices between the markets. But the narrowing of the gap suggests investors may be finding ways to bet on a convergence.
In spite of this, the Shanghai Composite is still driven chiefly by local retail investors’ enthusiasm – worryingly like the Nasdaq in 1999-2000.
For international investors, China remains a small market. The hotspot for international investors is Latin America.
According to Deutsche Bank, Brazil received the most inflows of any emerging country last month, with $900m, followed by Mexico with $541m. China, where funds are underweight, saw an outflow of $574m.
Brazil’s Bovespa index has set nine records since Shanghai’s previous high two months ago. It is the country in which emerging markets funds are most overweight, all without a compelling internal growth story. And as if to confirm that it was overheated, it has fallen 7 per cent in this week’s rout.
posted by Carlos T Mock at 6:21 AM
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