Caution on Stock Market

Back in September, I wrote this blog post: Xinhua: The Stock Market Is Safe, Foreigners Are Buying, Bull Market Is Here

Now Xinhua says instead of a bull, this market is a "mad cow." iFeng:新华社警示A股“疯牛”暗藏风险

Xinhua describes the bull market as "induced labor," a combination of surging confidence and capital injections. Caution is warranted though. Preliminary data shows that between November 24 and December 4, professional investors bought a net ¥30.9. Insiders sold a net ¥125.2 billion. Individuals bought a net ¥65.9 billion, and a large portion of those purchases came from small accounts with less than ¥100,000 in assets.

Margin is fueling purchases as well. From November 24 to December 3, margin accounted for roughly 17% of daily turnover. Total margin reached ¥850 billion, more than double the levels at the end of June. At the current pace, margin would hit ¥1 trillion before the end of the year and then on to ¥1.2 to ¥1.5 trillion in 2015.

Xinhua says a "quality bull market" has three factors: a sustainable economic foundation, the rise in stocks is sustainable for a long time, and the investment climate is lively, but not frenzied. In the current margin fueled frenzy, a sustainable bull market doesn't seem likely.

No comments:

Post a Comment