A-share market to endure bubble-squeezing

The Chinese stock market will enter a long-lasting "bubble-squeezing" stage and will become more investor-friendly in the long run, experts said at the Peking University Guanghua School of Management 2012 Finance Forum in Beijing last weekend.

Lei Jie, who has worked in the investment banking sector for over 20 years and is now the chairman of Founder Securities, said that shares of Chinese listed companies are still "expensive" if price to earnings ratios of banks are excluded.

Chinese listed banks earned 860 billion yuan ($138.14 billion) in the first three quarters, accounting for almost 60 percent of the 1,500 billion yuan of profits earned by all the listed companies, Lei added. There are more than 2,000 companies and only 16 banks listed on the Chinese A-share market.

Lei said that there are only 6 million active accounts among 100 million accounts in the A-share market, which means that in the past ten years companies earned money by selling shares and investors lost money by buying shares. Lei added that this means the A-share market is favorable for sellers. He said that buyers and sellers in the stock market have not reached equilibrium and there will be a long-lasting and painful period as the market lets air out of the bubble to become in favor of investors.

Qi Liang, president of China Securities Co Ltd, said there are still more than 800 companies queuing for initial public offerings. He suggested these companies be allowed to float shares as soon as possible. Qi said the right to go public is scarce capital and so many companies aim for that. He suggested that only when this rule is broken, the spring for investors will finally come.

Liu Qiao, finance and economics professor of Guanghua School of Management at Peking University, said that a lack of good quality listed companies is the main reason that China's capital market does not fare as well as China's real economy.

He said that if there are companies like IBM and Wal-Mart, which can perform well both in bullish and bearish markets, transformation of China's capital market can be successful.

Chinese shares fell on Tuesday, hitting a new low of 1,990.34 for 45 months. The benchmark Shanghai Composite Index closed at 1,991.17, down by 1.3 percent.