by winston » Mon Jun 22, 2015 6:51 am
A-share bubble yet to burst by Andrew Wong Wai-hong
Last week, China's stock market saw its worst performance in the past seven years, with the Shanghai Composite Index shedding 6.4 percent on Friday, down 13.3 percent for the week.
The Shenzhen Composite Index declined 12.7 percent over the week.
Have A shares peaked? Or will A shares have a 50 percent adjustment as the leading banks expect?
It is a consensus that A shares are in a bubble. But it would be a bit early to assert the bubble has burst based just on one week's performance, because A shares belong to the emerging markets, and it is normal behavior in the short term. More importantly is that the tumble in A shares has its signs and explanations.
First, Friday was settlement day for the A-shares futures index, plus a lot of funds from the mainland need to have enough cash in order to enjoy the "performance" bonus at mid-year.
So mainland investors selling in great quantities accelerated the decline of A shares, which is absolutely normal.
Of course, the factor of initial public offerings, or the strengthening of the regulation of margin financing by the China Securities Regulatory Commission may have also affected the performance of A shares.
But the fund pressure brought by IPOs has occurred many times this year, so Chinese investors are used to it. Therefore it is absolutely impossible to impose such huge adjustment pressure on A shares.
As for action taken by the CSRC, it did not begin just last week, and the market did not react in too big a way. So this also should not be the reason why A shares tumbled.
In fact, A shares made foreign investors lose interest owing to their sharp rise in the first place.
I believe the A-share market will bounce back when mainland capital returns to normal.
Source: The Standard HK
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