. Last Updated: 07/27/2016

Chinese Stock Market Awakens

SHANGHAI -- Large numbers of Chinese investors, mostly from outside the major cities, are putting money into stocks for the first time, pushing both trading volumes and prices up sharply, brokers and analysts said last week.

They said around 1.5 million new trading accounts had been opened on the Shanghai stock exchange alone in the past two months, representing the second major surge of investors into the stock market since it was founded in 1990.

The first wave of activity in the early 1990s, before the stock slump of 1994, largely involved individual investors and securities companies only in Shanghai and Shenzhen.

But, in contrast, 75 percent of the new accounts opened in Shanghai in the past two months had been opened by people outside the city, the Shanghai Securities News reported on Thursday.

Analysts said it indicated that basic confidence among Chinese investors in the stock markets was spreading to new regions and new groups within society.

"More and more investors outside Shanghai believe buying stocks is a good investment method, especially since China cut interest rates on May 1," said a Shanghai broker.

A broker in Shenzhen also said more investors from other provinces were buying shares due to rising confidence in the development of China's stock market.

The rush into the markets follows a strong rise in prices on both the Shanghai and Shenzhen exchanges over the past six months.

The market capitalization of the two markets has surged to over 600 billion yuan ($72 billion) of which Shanghai accounts for 430.8 billion yuan, up 21 percent from the end of 1995, the Shanghai Securities News said on Friday.

Shenzhen's capitalization rocketed by 83 percent in the same period to 204.0 billion yuan, it said.

Shanghai's A share index has surged 279.085 points, or 50.74 percent, to 829.085 since the beginning of this year while Shenzhen's A share index has risen about 110 points, or 100 percent, to 222.56 points.

"More and more people are beginning to invest in stocks due to sharp rises on the Chinese A share market and the expectation of further rises," said a Shanghai analyst.

Also, speculative trade is also becoming less of a factor. This is the case because investors are paying more attention to corporate earnings and the prospects of listed companies, analysts said.

"Companies' annual results have become an important condition when investors are buying stocks, because good earnings can reduce risks on the stock market," said an analyst in Shanghai.

Brokers said that blue-chip stocks were becoming the focus of the market as well as the first choice of investors because of the better returns they produce, despite the ups and downs in their stock prices.

"The good performance of these companies on the stock market has strengthened investors' confidence and made them gradually move out of pure speculative trading," said a broker.

For instance, Sichuan Changhong Electric Co Ltd, which posted the best 1995 annual results of all the Shanghai-listed firms, surged to a level of about 28 yuan from less than 8 yuan over the first half of the year.