What’s in a Chinese share price? Text books say it should be a function of risk-free rates, equity risk premiums and expectations of company earnings. In reality, it’s money and hope. There’s no other explanation for the record trading volumes in the country’s markets on Dec. 3, and the astounding run-up in share prices that has preceded it.
The two major markets of Shanghai and Shenzhen saw a record 915 billion yuan ($149 billion) of shares trade on Dec. 3. The figure for the Shanghai bourse is twice the highest daily amount traded during 2009’s rush into stocks, while its benchmark index has risen by just over a third this year. And the enthusiasm is widespread: over a million new stock-trading accounts were opened in November.
Yet there’s little to justify the exuberance. Corporate results are looking dismal, especially as price increases and export growth slide. Industrial profits fell 2.1 percent in October from a year earlier, and the Purchasing Managers’ Indexes that give show how bosses of manufacturing companies feel about growth are weakening.
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