Shanghai index tops in october (source headlinecharts.blog.com) just a few months after the maximum in stock accounts openings.
For investing in the stock market it’s not only necessary to analyse the Price earnings ratios (PER), or dividend yields, or earnings growth or level of indebtedness of companies. These indicators are important but often as with any other aspect of life, there are reports, statements, images or certain indicators that help us to explain about current and future developments of a country or a company.
One way to detect the dangerous existence of a market euphoria, just befote the imminent market collapse, is to analyze the number of accounts to operate in market that are opened each month. As you can imagine, when the euphoria reigns, people without experience opened his account in order to obtain an easy Money investing in the stock exchange. As always said, when the taxi driver or a housewife who has never invested in stock market, explain you that have begun to invest in stock market is an absolutely final indicator that share prices are only a few months from top. It has always happened in the past all over the World, and will happen in the future.
Number of accounts opened in China each month from January 2007 until May 2008 (source FT).
In April and May 2007 in China were opened about 5 million new accounts each month to operate on the Shanghai and Shenzhen Stock Exchange. In August and September 2007 are continuing at the pace of opening no fewer than 4 million new accounts monthly.
You know what happened after october 2007 until june 2008. Nearly 50% losses in Shanghai stock index (see my post in November 2007 explaining how to make money when the stock market china goes down). More recently In may, only are opened 1 million new accounts.
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