SHANGHAI, Dec 31: Chinese stocks in 2012 fell to levels unseen since the global financial crisis, as investors ignored a rebound in the world’s second largest economy and focused on fundamental problems with the market.
China’s economic growth hit a more than three-year low of 7.4 per cent in the third quarter, although recent manufacturing and other data have fuelled optimism that it has begun to recover.
But for the country’s 168 million investors — an unusually high 99 per cent of them individuals — an improving macro-economic picture cannot make up for weak company earnings, poor governance, oversupply of shares and a lack of liquidity, analysts said.
On December 4, the benchmark Shanghai Composite Index plumbed a four-year low of 1,949.46 points, its worst level since January 16, 2009. It has since recovered more than 16 per cent and on Monday, the last trading day of the year, it closed at a seven-month high, up 3.17 per cent on the start of 2012.
But in contrast Hong Kong’s Hang Seng Index powered ahead almost 23 per cent in the year and Tokyo’s Nikkei 225 rose by a similar amount. The S&P 500 on Wall Street was up more than 11 per cent.
The disconnect is stark — China is still by far the fastest-growing major world economy — but there are fundamental reasons for the Shanghai market’s poor showing. “Just know this — the performance of the domestic equity market is not so tightly correlated with the overall economy,” said Wang Tao, a Hong Kong-based economist for the UBS.
“Structural and governance issues remain and continue to plague China’s equity market,” she said in a report that described the country’s stock market as one of the worst performing in the world.
Many listed Chinese companies are still majority state-owned, and so are largely indifferent to the demands of holders of their publicly-listed shares.
China also has a massive share glut, with the total value of flotations over the past two years estimated at $1.3 trillion and hundreds more companies waiting to list as the government — not the market — decides which firms are allowed to do so.
At the same time, while Chinese investors have few alternatives to the stock market many have opted for wealth management products offered by banks or property purchases.
“The fundamental issue of supply and demand imbalance needs to be solved, or even an economic recovery may not be able to reverse the downtrend,” said BOC International analyst Shen Jun.
Shanghai-based Woo, a small luxury scarf retailer, would like to seek funding from the market but expects it will take three years to make it through the listing pipeline, starving the firm of the capital it needs for expansion.
“So far, there are 800 companies queuing,” said its chief executive officer Stephen Sun.—AFP