Shanghai Stock Market Buy Signals, Lucky Names and Bad News

I had never heard the term before, my bad, but it appears people refer to the stock market in China as “dubo ji”, meaning slot machine.

The NY Times has a very insightful and entertaining article about what drives small investors to buy.

Millions of everyday investors rushed blindly into stocks, emptying out their savings account to “play the market,” as many of them say.

Perhaps the most remarkable sign of the recent irrational exuberance underpinning China’s stock markets was that during the last year, when a company announced bad news, its stock price shot through the roof.

Early this year, for instance, when a group of 17 Chinese companies was cited by regulators for misappropriating corporate funds, their stock prices all skyrocketed.

When the Tianjin Global Magnetic Card Company failed to report quarterly earnings last April, its stock doubled.

In this current run of market mania, even corruption appears to be a buy signal. That was the case for the Shanghai Bailian Group, which reported on Dec. 29 that its chairman was under investigation for fraud. The company’s shares have climbed 45 percent since then.

Two weeks ago, after the chairman of the Shanghai Hai Niao Enterprise Development Company was detained, his company’s shares rose 15 percent.

So how does an investor learn about companies to invest in.

Again from the NY Times

Just to find names of stocks to buy is a task for new investors. So if they see even a mention in the press, positive or negative, they start buying. If alert investors are lucky, they might get a tip. If state television mentions a company, it must be worth something, and if they don’t catch the full story, they at least have a name.

In any case, many investors here seem to believe that the secret to picking stocks is luck and confidence in the government, not the fundamentals of any particular company.

“I don’t know how to choose a stock,” says a 61-year-old retiree who gave her name as Miss Hou at a local brokerage house a few weeks ago. “But I trust those technology companies. Maybe the names of some companies sound lucky to me, so I choose to buy these stocks.”

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One Response to “Shanghai Stock Market Buy Signals, Lucky Names and Bad News”

  1. Gordon Choi
    March 13th, 2007 04:25

    It looks as if for them buying stocks is like lotteries!

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