A week after breaking through the 4,000-point barrier, the Shanghai Composite Index (SCI) fell 0.7% on Friday amid fears that the government will take action to rein in the bull market. The SCI dipped below 4,000 during morning trading but rallied to close at 4,021.68. "The likelihood of some sort of action as we move up from 4,000 towards 5,000 increases significantly," Stephen Green, senior economist at Standard Chartered Bank, told the Financial Times. "Move slowly now and the risks of a much bigger, more painful correction later in the year increase." The market has jumped about 300% in the last two years following a four-year bear market. Retail investors are pouring in with nearly 400,000 new trading accounts being set up every day, the fervor sending price-to-earnings ratios up to 50 times compared to the Asian average of 14-18 times. Tightening options include a large interest rate rise, increasing the supply of new shares through the listing of more large capitalization companies and introduction of a capital gains tax on stock sales.
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