Worries About Stocks Frenzy in China

China's Social Security fund, among the country's top investors, has wound down its positions in equities, highlighting concerns the nation's markets are overheated, the Financial Times said Friday.

Gao Xiqing, the fund's vice chairman said at banking conference in Beijing that he is worried about the 16-month run up in share prices in China's two bourses which forced the fund to cut stock holdings and reduce risk.

"This market seems to be defying gravity. It's got to come down at some point. We can't risk that, especially given the nature of our fund," the paper quoted Gao as saying. "The market is making me nervous."
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In the first three months of the year punters in China opened 4.79 million new accounts, a 56-percent increase from the 3.08 million in the whole of 2006, the official Xinhua news agency reported citing government statistics.

Last week the number of new accounts in China's two exchanges in Shanghai and Shenzhen registered a record 252,000 new accounts in one day alone, the China Securities Regulatory Commission said.
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When everyone is rushing to invest in the stock markets, it is about time to time about getting out. I am increasingly getting concerned about the reports that Chinese nationals across all stratas are borrowing heavily to invest in the bouyant stock market.

Seems like my concern is being shared by certain quarters and I have to seriously think about shifting my holdings in Chinese equities somewhere else for the time being. There is no doubt that a MAJOR correction will occur in the China stock market but the question is when. Judging by the frenzy that the common people are in and the fact that China will be hosting the 2008 Olympics soon, it will be difficult to say for sure.

One time is certain though. When the China stock market does correct significantly, there is going to be much civil unrest. Amatuers to the stock market whom had borrowed heavily to speculate are going to lose their life savings. Suicide cases that mirrored the last Asian Financial Crisis will happen once more.

It will do good to spend some time to determine where to temporarily park funds which had been invested into China so as to re-enter the market after the correction.