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Investors rush in to grab a bull by the horns

By Jia Hepeng (China Daily)
Updated: 2007-02-05 09:45

It's a murky practice, and some wonder whether such private funds illegally raise money or just help friends deal on the stock market.

Industry watchdog China Securities Regulatory Commission (CSRC) has been studying a law governing private funds, media report.

But Shi said most private funds keep their word, because unlike publicly sold funds, which are supported by banks, credit remains private funds' best weapon to win clients.

Lurking risks

Shi said that risks are compounding for investors pouring their money into the booming market.

He said that during the past six months his company's system underwent strain because of massive booms in the number of new accounts opened. Both times, he points out, the market was in decline.

"Everyone thinks the declines are temporary," Shi said.

On the last day of January, the Shanghai Composite Index suddenly plummeted 144 points, or 4.9 percent, to close at 2,786. Despite the dramatic drop, most securities analysts believe it is an adjustment of the bullish market, rather than a warning that it is taking a bearish turn.

A Beijing bank manager, who refused to be identified, told China Daily that the number of clients mortgaging their properties for large cash loans has increased dramatically in recent months. "In our contracts, we ask them not to use the money for stock speculation, but in practice, it is very difficult to control," the manager said. "They don't consider that if they lose in the stock market, they may lose their properties."

Shi said that one of his clients asked him the second day after he opened an account: "How could my stock values decline?"

"The words are unimaginable for a market subject to regular fluctuations," Shi said. "For investors, the biggest risk is their lack of an awareness of risk."

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