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Markets bloom again as wary investors return

By Xin Zhiming (China Daily)
Updated: 2009-02-27 10:07

Chinese investors seem to have developed an appetite for stock market investments again, going by the 13 percent rise in new account openings last week. This is the biggest weekly jump in the last few months, despite the over 10 percent fall in the benchmark Shanghai Composite Index.

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The improved investor sentiment can largely be attributed to the bullish forecasts from economists and government officials. They have indicated that China's economy would recover well ahead of the global trend, which still is languishing.

Several indicators of the Chinese economy, such as industrial output, have already shown initial signs of an upward adjustment after declining in November. Optimists have even indicated the recovery could start from the second-half of this year and soar from next year onwards.

The stock market is generally considered to be the barometer of investors' expectations on the economy. The current bullishness is an indication of the market recovery in the third quarter of 2009.

The domestic A-share market has so far gone up by nearly 30 percent, whereas markets in developed economies have slumped amid a worsening financial crisis. It is justifiable, therefore, for investors to make good use of the current boom in the domestic market, though many fear it could be short-lived with more corrections likely in March.

The Shanghai index slumped nearly 4 percent yesterday, continuing its weakening trend since last week. Rational investors should not ignore the effect of the National People's Congress and the Chinese People's Political Consultative Conference sessions on the stock market. This time, in particular, the sessions are expected to focus on the global financial crisis and the domestic efforts to counter its adverse impacts. Hopefully more stimulus plans would be discussed and implemented after the meeting, leading to a further boost in investor sentiment.

Nobody, however, is willing to take bets on how long the bullishness would last. It would be prudent for investors to take a cautious approach from April onwards and not take bold investment decisions unless the economic indicators for the first quarter show signs of a substantial economic recovery.

The crux is whether the government stimulus measures would make the much-needed impact on the market in the wake of a weak global demand constricting Chinese exporters.