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Last Tuesday sell-off not Black Tuesday

By Hong Liang (China Daily)
Updated: 2007-03-06 09:55

But such a disparity does not necessarily mean that the mainland market is over-valued because the mainland economy is growing at more than double the pace of Hong Kong. "Of course valuations (of mainland stocks) are already high, but not stratospheric by Chinese standards," the UBS analysis noted.

It is generally accepted that the growth rates for the Chinese economy and corporate earnings in 2007 will equal, or exceed, those in 2006. Based on such projections, the prospective multiples of the leading mainland stocks may look downright tempting.

Here on the mainland, as in most other markets, investors' sentiment can be swayed by expectations of the government fiscal and monetary policies. The government is widely known to have been keeping a close watch on the flow of funds into the stock market since the rally took off in earnest many months ago. But there seems to be no compelling reason at this time for the authorities to seriously tighten liquidity.

However, the potentially devastating force of investors' heard mentality, as demonstrated so vividly last Tuesday, cannot be easily ignored. The Wall Street Crash of 1929, "Black Tuesday" as it has come to be known, also serves as a reminder that there is an urgent need to step up efforts in establishing the proposed financial futures market.

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