http://www.bloomberg.com/apps/news?pid=newsarchive&sid=awkRGTfDCpMM

Jan. 22 -- China's stock market has become the most expensive in Asia, leading strategists at Citigroup Inc., HSBC Holdings Plc and UBS AG to warn investors to stay away.

Shares traded on Chinese mainland exchanges cost twice as much relative to earnings as they did 18 months ago, and double the average for emerging markets, after extending last year's 121 percent rally in the Shanghai and Shenzhen 300 Index. The surge sent their value above $1 trillion for the first time and prompted the government to caution shareholders that "blind optimism" is driving gains.

China Life Insurance Co., the nation's largest insurer, has more than doubled since trading began in Shanghai on Jan. 9. The debut followed a stock sale in which investors ordered 49 times the available shares. Industrial & Commercial Bank of China, the No. 1 bank, has gained 70 percent since selling shares in October in the biggest-ever initial public offering. Demand for ICBC shares from individuals in China was five times that of institutional investors, according to bankers managing the sale.

"It's a warning sign every time you see retail investors in long queues for initial offers," said Lau Wing Tat, who oversees $8 billion as chief executive officer of DBS Asset Management Ltd. in Singapore. "Retail investors don't set the trend and instead pile in when they think there's money to be made, often near the end of the rally."

Growth, Yuan

International investors are starting to gain more access to the local market in China, where economic growth is the fastest among the world's major nations and the yuan is strengthening.

DBS Group Holdings Ltd., Southeast Asia's largest bank, is among 55 foreign firms that have government approval to invest a total of $9.55 billion in yuan-denominated securities, including so-called A shares. The bank owns a 33 percent stake in Changsheng Fund Management Co., a Beijing-based firm which manages 25 billion yuan ($3.2 billion) of local assets. Others with approval to invest include Goldman Sachs Group Inc., Morgan Stanley and Yale University.

The Shanghai and Shenzhen 300, tracking A shares on the mainland's two exchanges, jumped 10 percent last week to 2396.09, its biggest weekly gain in eight months. The index climbed 4 percent today and is up 22 percent this year.

International investors can buy Chinese companies' H shares, listed in Hong Kong, without restriction. The Hang Seng China Enterprise Index of H shares has fallen 2.8 percent this year after gaining 94 percent in 2006.

1

2

3

4