Stocks News
- Funds see high risks in small stocks
Date: 24-Apr-2007 Sources: (Shenzhen Daily)
THE A-share market is overheated, as evidenced by a recent relentless surge in small-cap stocks, but any pull-back is unlikely to reverse the long-term upward trend of the market, according to fund managers.
The benchmark Shanghai Composite Index's 38.70 percent gain since the start of this year was largely fueled by a frenzy of speculative buying of shares in small companies with poor earnings records but bolstered by rumors that their assets would be restructured.
The A shares of 753 listed companies, or more than half of all stocks floated on the exchanges in Shanghai and Shenzhen, have doubled this year, the Shanghai Securities News said in a report last Wednesday.
The surge is reminiscent of the late 1990s, when nearly all third-tier stocks went through the roof on speculation of asset restructuring, before falling back sharply.
'The market is obviously overheated. Investors are merely chasing rumors these days,'Lu Jun, chief investment officer of China International Fund Management, JPMorgan's fund management joint venture in Shanghai, said.
'I would only buy stocks that are backed by solid fundamentals,'said Lu, a well-known fund manager in China.
Lu and other fund managers said many of the country's blue-chips were still worth buying, anchored by China's rapid economic growth and a series of structural reforms that have improved corporate governance.
The first-quarter results of 96 mutual funds showed they had cut their stock positions to 80.2 percent, from 83.36 percent in the fourth quarter, with financial and property bearing the brunt of selling, domestic media reported.
But fund managers said that did not mean they were souring on those blue-chips. They were forced to sell down those stocks, which are more liquid, to meet redemptions from retail investors, who raised money to buy new funds.
'Third-liners will undergo a sharp correction this year because the bubble is getting too big. We still see long-term value in the banking, property and steel sectors,'said Zhu Ping, chief investment officer of GF Fund Management Co.
Fund managers said the massive rally among small-cap stocks this year was mainly propelled by retail investors, who are swarming into the stock market following a 130 percent gain in the Shanghai Composite Index in 2006.
Investors opened 1.14 million stock accounts in the past five trading days, domestic media said last Thursday, surpassing the number opened in the whole of 2005.
Retail investors have also been piling into the mutual fund sector, snapping up newly launched products, fund managers said.
Two mutual fund companies raised a combined 18 billion yuan (US$2.33 billion) in a single day from the launch of two equity funds last week.
Phone banking systems also crashed at several Shanghai banks last Monday due to heavy demand from users who scrambled to transfer deposits to their stock accounts.
China International Fund Management said two weeks ago it had received nearly 90 billion yuan in subscriptions to its new equities fund in a single day, more than 10 times its original sales target.
'I think the overall stock market can still be propped up by ample liquidity, although too much risks have been accumulated in small stocks,'said Pan Jiang, chief equity investment officer at fund house Wanjia Asset Management Co.
Sponsor Results:
