Cashing in on China

The Chinese stock market is not just hot these days, but sizzling hot. With Chinese shares nearing a seven-year high, daily trade turnover exceeded 1 trillion yuan ($161 billion) for 10 days in a row this month and hit a record high volume of 1.8 trillion yuan. Servers at two large brokerage houses broke down due to the heavy trading.

Upon seeing such signs of overheating, the frenzied buying spree could lead to some cooling off measures. But Chinese authorities are doing the opposite. They are fanning the flames. The government rolled out one economic stimuli plan after another and authorities cheered the market on with encouraging comments. China’s State Council, or the cabinet, announced a plan to set up a government capital fund worth 40 billion yuan to support start-ups and promote the capital market. Premier Li Keqiang pledged to take action if the economy slows while assuring there were still “comparatively many” policy tools to stimulate the economy. The spring bullishness following a bull run in November has been driven by the state. The bulls returned to the market after a two-month hiatus because authorities successfully bolstered investment confidence.

The Chinese government introduced a tax-deferred pension investment scheme for salaried workers modeled on the American 401K program, paving the way for new funds to enter the local capital market. The Chinese central bank governor in a press conference said capital inflows into the stock market helps economic growth. A spokesman for China’s Securities Regulatory Commission said there were good reasons behind the latest gains. Authorities sent a united message that they won’t interfere with the bull run. That was a cue for everyone to rush into the market.

But it’s not easy for a foreigner to make money on the Chinese bourse. The Shanghai-Hong Kong Stock Connect, a cross-boundary channel that connects the bourses in Shanghai and Hong Kong, is not a system friendly to foreigners. There seems to be money to be made when shares are on an upward spiral. But a Korean investor can get burned if he tries to mimic Chinese investors without clear insights and an understanding of the market.

Inexperienced novices can end up losing money to the Communist Party and Chinese investors. Individual players take up more than 90 percent of the Chinese market, but they are not to be underestimated. Many of the over 1.8 million individual players are experts who have been educated in top schools like Tsinghua University, Peking University and Fudan University. Information gets around at a fast rate among 560 million smartphone users.

Only the tough, daring, and tireless can win. Anyone interested in fast or easy money will be quashed.

So how does one succeed in the Chinese stock market?

Investors must pay close attention to President Xi Jinping and Premier Li for guidance. The market is in the hands of these two. Xi is a discreet speaker. But when he does speak, his words turn the market. In September 2013, Xi talked about a vision for a modern-day Silk Road. He followed up with a plan to create a maritime Silk Road in the following month.

He finalized his vision by declaring the “One Belt, One Road” project, a proposal link of the Asian and European continents through land and sea routes during a summit of the Asia Pacific Economic Cooperation forum in November 2014. Chinese shares got enormous traction from those grandiose plans.

More cues come from premier Li. Li is an acclaimed genius. He rarely reads from a script when making speeches. He talks fast. He often uses his hands when he talks. The kind of gestures he uses can suggest his intentions and will.

Last year, Li talked about focusing on six areas to promote consumption. The first was information consumption. He emphasized Internet financing and when he visited Shenzhen, and he became the first subscriber to China’s first Internet bank Tencent. In this year’s government report at the National People’s Congress, Li introduced the so-called Internet Plus strategy to integrate the mobile Internet, cloud computing, big data and the Internet of Things with modern manufacturing to boost efficiency and demand. The lingo led to frenzied buying of Internet-related shares.

The delayed endorsement of a Shenzhen-Hong Kong Stock Connect that would allow investors to trade in the technology-laden bourse with their accounts in Hong Kong is frustrating for Korean investors as they watch the rallies in Chinese IT shares. The cross-trading will be available in the latter half of the year and shares in Shenzhen will have already reached their peaks by then.

The Shanghai bourse is considering creating an Internet Plus market upon advice from the prime minister. Internet software shares could become as big as Chinese technology hardware companies. The shares to watch in China are the Silk Road and Internet Plus enterprises.

Translation by the Korea JoongAng Daily staff.

JoongAng Sunday, Mar. 29, Page 19

*The author is the director of China Economy and Finance Research Institute.

by Jeon Byeong-seo