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Rollercoaster Ride Leaves Shanghai Investors Flat

Rollercoaster Ride Leaves Shanghai Investors Flat

Shanghai, Dec 31, 2015 (AFP) – Chinese stocks ended 2015 slightly higher despite a wild ride that saw trillions wiped off market capitalisations in a summer rout that shook global markets and prompted an unprecedented government rescue package.

From January 1 to mid-June the Shanghai market — which had already surged by more than 50 percent in 2014 — leaped by 60 percent again.

Then it slumped nearly a third in three weeks, before slowly recovering.

After all the gyrations of the most volatile year in the quarter-century history of the modern Chinese stock market, the Shanghai Composite Index closed at 3,539.18 on Thursday, up 9.4 percent for the year.

“It was the year of the ‘monkey market’ for Chinese stocks — jumping up and down like a monkey,” said Professor Oliver Rui of the China Europe International Business School.

But a small profit will have seemed like a bonus to investors during the depths of the summer turmoil, which prompted an extraordinary government bail-out.

Beijing spent as much as $230 billion buying shares to support the market, according to an estimate by investment bank Goldman Sachs.

Early in 2015, the government had urged exchanges yet higher with the People’s Daily newspaper, the mouthpiece of the ruling Communist Party, saying: “The 4,000-point level is merely the beginning of the bull market.”

Looser controls over margin trading — investors using borrowed funds to trade stocks with only a small portion of money put down as deposit — also fuelled the bubble, and its subsequent burst after regulators cracked down on the practice.

“Everyone took the rollercoaster ride, but in the end the market is still where it began,” said Phillip Securities analyst Chen Xingyu.

The Shenzhen Composite Index, which tracks stocks on China’s second exchange, performed far better for the year as investors chased smaller company shares in the face of Shanghai’s weak performance. It surged 63.2 percent for the year, making it one of the world’s top performing markets.

– Year of volatility –

For some analysts, the government bail-out raised deeper questions over its commitment to economic reform, as the moves were widely viewed as anti-market.

Regulators barred major shareholders from selling, allowed hundreds of companies to freeze trading in their stock and funded a “national team” to buy for the government.

“They stabilised the market, but they’ve done that at a tremendous cost,” said Fraser Howie, an independent analyst and co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise”.

China needs to push stock market reforms, including allowing the China Securities Regulatory Commission to operate more independently, he said.

“You’ve got to have a regulator that’s free to make decisions and have independence, rather than being a cheerleader for the market on the way up and a nurse on the way down,” he said.

State media reported on Sunday that one long-awaited reform, a revamp to the system for initial public offerings, was moving ahead after lawmakers authorised the central government to make changes.

Regulators now hand-pick the companies to list and set their flotation prices, instead of the market.

The government should also seek to grow the number of institutional traders, experts say, as most investors are individuals bent on short-term gains.

“The volatility this year was the most severe in the history of the market as it was driven mostly by liquidity and people’s emotions, and had very little to do with economic fundamentals,” Citic Securities analyst Zhang Qun said.

Citic Securities forecasts the Shanghai index could move up in 2016 after finding some stability, trading broadly in a range of 3,000 to 4,500.

But retail investors like Lu Xinjie would like to see bigger gains in 2016.

A game designer, Lu complains about a lacklustre 2015 after jumping into the market at its peak.

“My stock account still has the same amount of money from when I started,” he said. “I feel like I’m not suited to trading stocks.”