Money

Time to fasten your seat belts

By Ren Kan (China Daily)
Updated: 2011-06-01 14:48

It may be disappointing that I'm not going to talk in this column about whether it's time to buy into China's stock market when the market looks cheap after a recent derating. I have to admit that, despite being one of the first journalists who began reporting on China's financial and stock markets more than two decades ago - when the Chinese stock market was set up - I have never bought a single share.

Nevertheless, it is still thrilling to watch the volatility of Chinese stocks, especially between late 2007 and the end of 2008 when many lost three-quarters of their value.

China's economic growth has been maintained at a remarkably fast and stable pace for more than three decades, even in the face of the Asian financial crisis in the late 1990s and the present global downturn.

China has more than 2,000 listed companies, ranking second in the world by market capitalization of stocks, and the number of investors is more than 130 million.

However, even for investors who take a bullish view of the Chinese economy - which on average increased by nearly 10 percent a year over the past three decades - the Chinese stock market might have been disappointing. No other industry in China's history has affected so many people's wealth and destiny.

Although less than 5 percent of the population owns equities, compared with more than 50 percent in the United States, people around me such as retirees, housewives, government officials, professionals and students have opened stock accounts. The trading halls are full and online chat rooms and financial websites are busy.

Few are thinking of withdrawing, even in the face of increased market volatility. They do get jittery from time to time for reasons that may seem irrational to an economist or professional analyst. But most investors are confident the market will continue to go up.

Investors are sometimes criticized for being unsophisticated or uneducated. Experts often attribute market volatility to those who ignore long-term investment opportunities for short-term gains.

Even a cab driver or a baby sitter will talk with confidence. Investment master Jim Rogers once said: "I never sold my Chinese stocks and my plan is one day to let my child inherit my Chinese stocks. When China shares fall a lot, I'll buy, but I never sell. I'll take them to my children."

Everyone dreams of being rich. In front of a computer, they make decisions, relying on their own judgments, courage and knowledge, in a place which requires no market approval, no barriers to entry, and is relatively fair and transparent.

As the late Deng Xiaoping, who started the Chinese stock market, said, to be rich is glorious; a fair chance at the dream of wealth is the cornerstone of the stock market.

China's capital markets, however, are still in their infancy, compared with those in developed countries. The creation of a favorable legal framework to protect the right to dream is most urgent.

Many changes are needed in China's stock markets. Such changes, while positive in the long term, will stir erratic movements in stock prices in the short term.

To conclude: Fasten your seat belts; it's going to be a bumpy ride.

Ren Kan is assistant editor-in-chief of China Daily.