Mr. Shangkong

Landmark shift in 'one child' rule brings market bubbles

Investors should cash out 'policy dividends' as the bull run in thebaby milk producers and piano makers makes little sense

PUBLISHED : Monday, 25 November, 2013, 3:47am
UPDATED : Monday, 25 November, 2013, 8:16am

Last week, institutional and individual investors poured money into so-called "second child" concept stocks, which can be baby milk producers or even piano makers as long as they are more or less related to how to grow a child on the mainland in the short or long-term.

Investors who made some quick profits from the sharp rises in those baby-related stocks should really thank President Xi Jinping for easing the long controversial "one child" policy.

But I guess the "second child" initial impact on the mainland's stock markets - even before it hits the social and education systems - may be beyond Xi's expectations.

I know some hedge fund managers did not really enjoy the past week as they had short positions mainly because they found the Communist Party's new blueprint for the next chapter of economic development lacked concrete measures. So some of them decided to stay away from the market for a while.

[Investors] should cash out to make a quick profit from the so-called ‘policy dividends’

I am not sure if their views about the economic outlook may be too pessimistic, but they were clearly proved wrong for selling rather than buying equities in the past week. The "second child" stocks were just some examples, while blue chips such as mainland brokerages also saw some surprising gains.

Two Shenzhen-listed piano makers that grabbed my attention were Pearl River Piano - whose company website says it has won high praise from top leaders such as former state head Jiang Zemin in the past few decades - and its smaller rival Hailun Pianos.

The two brands enjoy large market shares on the mainland and thus their share prices rose more than 10 per cent last week following the government's milestone decision to ease its "one child" policy.

The question is how long does it take a child to grow from birth to the age when he or she may need a piano to learn how to play it? Does it make any sense for professional fund managers or individual investors to pour money into the two stocks even before they can get a clear idea or estimate on their earnings growth and real demand in the piano market for the next five to 10 years?

Many of those who want to have a second child are typical middle-class families. When they got their first child, many could have already bought pianos. What may make more sense is that once they have their second child - and by then their first child would have grown up - their second child can just use the old piano.

If you believe my estimate sounds more practical, then you should quickly cash out of those piano makers before they see the reality - just to make a quick profit from the so-called "policy dividends".

If that is the typical sentiment in the stock markets - just to make some quick profits and make investors look more like gamblers - what hope are we talking about for the outlook of social stability and economic development on the mainland in the long run?

George Chen is the Post's financial services editor. Mr. Shangkong appears every Monday in the print version of the SCMP. Like it? Visit