Happy days are here again for China?s much maligned domestic A-share market. That is, if you believe everyone from local brokers, now vigorously talking up their book after barely being able to stay in business for the last two years, to the State Council, whose pronouncement about the newly buoyant market was announced in revolutionary red characters on the front pages of the securities newspapers in February.
Who could blame them for wanting to get the party going again? The only Chinese who have been able to take advantage of the China boom have been the ?suitcase investors? with the smarts to get their money offshore into Hong Kong and New York to play the markets there. They have just about doubled their money, leaving the hapless mom-and-pop players sitting on their hands, and big losses, at home.
There are some reasons to be more cheerful about stocks in China. Once the index hit 1,300 points last November, they couldn?t go any lower for starters. A swathe of better quality companies, with real (as opposed to fake) earnings, have been listed in the past two years. The most egregious manipulators ? yes, that includes the aforementioned state-owned brokers ? have been put back in their box, and warned very firmly to stay there. And, on balance, it?s probably better, in the short-term, to have your holdings in renminbi than US dollars.
But in line with Fat Dragon?s long-held maxim for columnists ? that no one remembers you if you are singing in a chorus ? readers should be reminded of a number of very good reasons why they shouldn?t rush headlong back into the A-share market.
There?s the fact that most of the 1,290- odd listed companies remain of dubious worth, to put it kindly. The biggest problem, however, remains that fact that the state still owns about two-thirds of the shares of listed companies and hasn?t worked out how to get rid of them. This overhang still scares the life out of most sensible investors.
Lots of new proposals are doing the rounds to tackle this issue. The most popular one even makes some sense ? getting the companies themselves to work out a way to sell down the state shares in a way which doesn?t make their stock price collapse and injure existing investors.
But in Fat Dragon?s view, this only works with the few listed companies that have real businesses. The horrible truth for most of the listed state-owned enterprises is that every time the market puts a value on their non-traded shares, it comes out at close to zero. And that does not form a very solid basis upon which Chinese bulls can stampede again.