An indicator to know when you should invest in the China stock market
- Posted by Marc on June 28th, 2008 filed in Outlook
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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9 Responses to “An indicator to know when you should invest in the China stock market”
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June 28th, 2008 at 9:26 pm
[...] Original post by investorsconundrum.com [...]
June 28th, 2008 at 9:34 pm
Nice writing. You are on my RSS reader now so I can read more from you down the road.
Allen Taylor
June 28th, 2008 at 9:36 pm
[...] Original post by investorsconundrum.com [...]
June 28th, 2008 at 10:16 pm
[...] Original post by investorsconundrum.com [...]
June 28th, 2008 at 10:16 pm
[...] Original post by investorsconundrum.com [...]
June 29th, 2008 at 1:48 pm
Yes, very interesting. should we take into account the demographic curve?
June 30th, 2008 at 6:55 pm
The “RSI Bear Resistance” point in the above graph matches the 3000 point level of the Shanghai A Share Index, which had specific resistance due to the Chinese stock exchange regulator stepping in whenever the index came too close.to it in the past, creating the dead cat bounce effect which I discussed on China Supertrends here and \here.
On this most recent occasion, when the regulator failed to come up with a new stimulus for the market (and at the same time, the central bank announced a further tightening in monetary policy) the index lost support and it has plunged below the 3000 level to depths not seen in almost 16 months.
Word on the street is that the “RSI Bull Support” level roughly corresponds to a 2200 point level in the Shanghai index. In the following weeks of the Olympics, yet with uncertainty over oil prices, I’m unwilling to make a prediction of how low it might go, but I do believe the regulator will step in with a new policy prior to the Olympics to stimulate the market before deeper lows are seen.
July 1st, 2008 at 9:13 pm
Very interesting Jason, I will read your post in chinasupertrends.com
July 27th, 2008 at 7:39 pm
[...] will be interesting to review the chinese stock indicator. related content: Frustration index and june S&P 500 largest short positions «« [...]