China's Base Building

The Standard: Many mainland investors are saying they will think twice before jumping back in to the stock market, despite the generous market-saving measures unveiled by Beijing last week. "It's good the government has come in to rescue the market, but I'm afraid that we haven't hit rock bottom yet," said Zhan Ye, a driver for a property company who used to order stock trades from his car as he listened to the radio news. "As soon as people see prices falling, they'll just get scared and pull their money out again." Middle-class dreams have been buried by the stock-market declines, according to Zhang Qi, an analyst at Haitong Securities in Shanghai. "Life savings have vanished just like smoke," said Zhang said. "Looking ahead, more family investors will stay far away from the stock market." Zhou Yu, 25, a Shanghai office worker, cashed his stocks in earlier this year, picking up a laptop, an iPhone and a camera with his profits. "I'm not planning to go back in right now," he said. "With the overseas market conditions ... who knows what the next big trouble will be?" To lure investors back, the government will have to offer even more sweeteners, some analysts believe. "How much confidence can be restored ... all depends on how generous the government will be," said Cao Xuefeng, an analyst at Western Securities in Chengdu.

Comments: Last week I have reiterated a couple of times that the Chinese stock markets could look very interesting over the immediate future. Once Beijing decides to do something, they will be very persistent to bring it to fruition. We should remember when the markets was above 5,000 and the way they have been raising SRR and interest rates to quash market activity. Safe to say, Beijing had been terribly successful at that. Hence when global event converge to further force Beijing's hand, I would side with Beijing.

The other major point to note is that market crashes are a bit different for China compared to other markets. Yes, the markets in China have a high percentage of individual participation, but that is much like the trend in most Asian markets. The good thing is that buying on margin is still in its infancy in China, which is good. There is still a lot of money in deposits. During crashes, many investors do not only lose their shirts but owe more than their net assets. This is not the case for the majority of share players in China. Yes, its painful, if you have 50,000 yuan and you lose 30,000 yuan it really hurts. In most other Asian markets if you have 50,000 dollars, chances are many will be losing all of that and more. In that sense, it is easier to rebuild momentum in China markets than you'd think.

I do think there will be a run even up to 3,000 level.

p/s photo: Taw-Natoporn Taemeeru