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  • Sep 22, 2014
  • Updated: 5:51pm
Jake's View
PUBLISHED : Tuesday, 30 April, 2013, 12:00am
UPDATED : Tuesday, 30 April, 2013, 4:28am

A decade of growth but no sign of a fair share

The mainland economy is five times as big as it was 12 years ago but Shanghai's stock market has gone nowhere amid barriers to profitability


Jake van der Kamp is a native of the Netherlands, a Canadian citizen, and a longtime Hong Kong resident. He started as a South China Morning Post business reporter in 1978, soon made a career change to investment analyst and returned to the newspaper in 1998 as a financial columnist.

The China Securities Regulatory Commission published a new guideline on mutual fund operations after the market close yesterday, stipulating that stock-focused funds must spend at least 80 per cent of their assets to buy stocks, up from the current requirement of 60 per cent.

SCMP, April 27


Let's first set out just how awful the performance of the Shanghai stock market has been. They say a picture is worth a thousand words but, as pictures cost me only a hundred words each in this column, I'll give you two.

The red line on the bottom of the first chart represents the Shanghai Composite Index set to a base of 100 for the end of April 2001. This date is exactly 12 years ago and the Shanghai index is exactly where it was back then. The blue line angling upwards represents the mainland's nominal gross domestic product calculated on the same basis. It is now more than five times as great as it was 12 years ago.

Find me anywhere else in the world where a stock market has done precisely nothing while the economy on which it is based has quintupled in size. Happy hunting.

The second chart compares the Shanghai index to the weighted average performance of stock markets in Asean. Yes, you know, those little countries at the bottom of the map of Asia, which everyone has forgotten about for years because China is the big thing, don't you know. To aid memory, this index comprises the Philippines, Thailand, Malaysia, Singapore and Indonesia.

Once again the red line represents the Shanghai index, which does a little better this time because this chart is based on US dollar values and the yuan is strong against the US dollar. The market is 41 per cent higher this time than it was in April 2001.

But, yes, so what? The Asean markets on average stand 654 per cent higher than they did then. I shall let you say it about the Shanghai market. What the … ?

And now, in so many words, the new chairman of CSRC, Xiao Gang, has told you why. He is apparently of the view that stock markets exist purely and only to help fulfil objectives of the government's five-year plan.

Unfortunately, raising money from a stock market occasionally becomes difficult when all the profitability is siphoned away.

Illusions of corporate responsibility to shareholders must then be created by pushing up share prices, which is done not by giving people a decent return on their money but by forcing them to put more money in.

It has apparently never occurred to Mr Xiao that this gives you only a one-off boost and then faces you with the same problem as before, made worse this time by the fact that you now have a big overhang of shareholders who would rather be out and will take their first chance to go.

And this is the mainland's chief securities regulator, the man on whom our angelic Securities and Futures Commission must rely for front-line oversight of the bulk of the market capitalisation of the Hong Kong market.

What the … ?



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Ay... big arbitrary-slicing-of-data-to-prove-a-point red flag here. A bit of a cheap shot Jake, and not necessary as you could have proven more or less the same by just taking a 20-year or 10-year period.

The 'precisely 12-years ago' point of April 2001 seems like an honest, random choice, but coincides with just about the highest level of the SSE Composite in the period 1990-2006. The index reached that peak in early May 2001, and it would take more than 5 years to pass it again (late 2006). In between, it reached a low of roughly half (!) its peak level. Therefore, the 2001 peak was an inflated (b... b.... bubb... no I won't say it) level, just like the absurd levels reached in 2007 were clearly unsustainable.

Let's take a larger timeframe shall we? As you must know very well, the SSE Composite is in itself an index that was based at 100 when it was first launched, in 1991. So when it now stands at 2200, that still represents a return of 2200% over some 22 years.

Or take a 10-year period, to see the index go from 1500 in April 2003 to 2200 now. Then we have a return of about 3.4% per year. Not great perhaps, but I'll take it.

Timing matters. A lot. Your overarching point about the structure of the mainland stock markets and the disconnect between stock prices and economic performance is valid, but the arbitrary slicing of data for dramatic effect to underscore it does not strengthen the credibility of your argument, instead, it undermines it.


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