20 May 2019
While Hong Kong youth are waging a battle for democracy, their peers in Shenzhen are more interested in riding a stock market rally. Photos: Bloomberg, AFP
While Hong Kong youth are waging a battle for democracy, their peers in Shenzhen are more interested in riding a stock market rally. Photos: Bloomberg, AFP

Guess what’s keeping the mainland youth busy?

The ten-week-old Occupy campaign continues to be the main taking point in the student community in Hong Kong, but just across the border in Shenzhen there is an entirely different thing that is occupying the mind-space of the youth: surging Chinese equities. 

With the A-share market in a tizzy upward spiral in the past few weeks, hundreds of youngsters gathered at brokerage houses in Shenzhen recently to open new stock accounts. Due to the rush, the brokerages had to buy extra plastic chairs and make other arrangements, a local newspaper reported.

An employee at a securities firm was quoted as saying that his branch saw more than 200 new accounts opened on some days and that the staff didn’t even get to take lunch breaks.

The Chinese market has had a great run of late. The Shanghai Composite Index surged 20 percent in the past month, thanks to a sudden rate cut by China on November 21. Rocketing prices and record high turnover helped the Chinese market surpass Japan as the world’s second largest in terms of value.

So, has the mainland market now entered a new phase after underperforming global bourses in the past seven years. Since hitting a high of 6,000 points in 2007, the Shanghai benchmark had fallen to as low as 2,000 points before rebounding to the current level of around 3,000.

There has been some talk that the Chinese market will go back to where it was, meaning that it is set to rise much further from present levels. Thus, speculative frenzy is building up again. Mainland investors, we all know, never shy away from momentum trades. 

Whether there will be seven years of plenty following seven years of drought is anybody’s guess, but what we can say for sure is that people are itching to get on the ride.

Some Shanghainese have a theory that the stock and property markets usually have a negative correlation: as one goes down, the other usually climbs, they reckon. It is not often that both go up, but it is also rare that both go down at the same time.

But unfortunately that was indeed the case in most of the past seven years, thanks to the government’s policies aimed at curbing speculation in the property as well as the stock market. In recent years, Beijing’s anti-corruption drive hit the retail sector, especially the high-end segment.

But sentiment appears to be on the mend now. There are signs that new capital is flooding into the stock market, as investors divert money from bank deposits, property and wealth management products. Some people are even said to drawing money from Alipay accounts to play the stock market.

So is it a mad bull run in the making? Or is the 20 percent rally a sign of an over-brought market? As people scramble to open new accounts, is it a time for savvy investors to cash out?

Well, this debate will no doubt gather steam in the coming weeks. In the meantime, there is this one thing that we need to bear in mind: when the last bear becomes a bull, you know it is time to sell the market.

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EJ Insight writer

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