China's Stock Fever
Prices on the Shanghai stock market hit a seven-year high last week. They have been boosted by monetary easing, which has unleashed more money that is flowing into the market. And deregulation in April has allowed people to trade with a larger number of securities companies.
In a word, small investors are excited. A crowd of them gather in a Shanghai square every weekend and there's only one thing on their mind. "The price has hit the bottom," a voice cries out. "I bet it'll go up," another replies. Conversation is rapid-fire, and only about trading. "Did you sell already?" "Yes, I did." "It hasn't changed, has it?" "I thought it would go down!" "Didn't I tell you it would definitely go up again on Monday?"
One man is peddling software to the group. He claims it can predict share prices. His sign reads "guaranteed profits." He explains the software: "A yellow line means 'buy.' A white line means 'sell'. It's simple. It takes only a minute to master it."
Individual investors like those at the weekend gathering are driving China's stock market. They account for some 80 percent of trading volume. And every day, more people join their ranks. About 8 million new brokerage accounts were opened in the first three months of this year, and five times more than those who signed up in the same period a year earlier.
Real estate agent Shen Tao is looking to build a nest egg for his family. With property prices sluggish, he has put his savings in the stock market instead. He started with about 32,000 dollars. Three months later, the shares he bought are worth 70 percent more. He now has most of his assets invested in stocks, a total of about 80,000 dollars. "Share prices are rising right now, so I opened an account," he says. "I'm confident I can make money in the stock market."
Prices are rising, and so is risk taking. Some people are putting more money than they own into stock. Some brokerages lend money to customers who trade stocks. They allow their clients to borrow up to four times the amount of collateral they have put up, as long as they are willing to pay high interest rates.
Buying stocks with borrowed money can mean bigger profits, but only if share prices rise. Falling prices can inflict huge losses on the investor. Liu Yang, the CEO of a brokerage, says "the market is doing well. So, many people want to borrow money. We don't have enough to lend to everyone."
One man betting on a rising market has more than 140,000 dollars invested in stocks. Less than 30,000 of that is his own. The rest is borrowed money. It's costing him thousands of dollars in interest every month, but he says the potential gain makes it a risk worth taking. "If you want to make huge profits, you have to take big risks," he says. "I don't want to miss this once-in-a-lifetime opportunity."
That kind of talk alarms some analysts. They're warning about an overheated market. But that's a warning that is hard to hear among the excited conversations on the streets of Shanghai.