I read this very enlightening and interesting article in The Economist which strengths my resolve to avoid the Chinese stock market for the short run. I believe the Chinese market is a great long term opportunity but it seems to lack maturity required for competitive capital markets.
The Economist lists the following as reasons for the foreboding title:
1. The Shanghai stock exchange is virtual and differs greatly from the western concept of stock markets where demand and supply are free.
2. Stocks do not actually grant full ownership rights.
3. Chinese stock prices are believed to move in just one direction: Up. This belief is a result of a series of IPO’s of government companies which were priced in a fashion that would lead to high demands and huge price surges.
4. Lack of alternatives for Chinese savers.
5. Lack of the ability to “Short” on stocks.
6. Lack of transparency.
The complete article can be found here.
More on the Chinese stock market:
1. NYSE urges China for more listing flexibility @ DealBook
2. China: Bubble pop just got louder @ BloggingStocks
3. China and 2008 Beijing Olymptics: Are Chinese Stocks Too Expansive? @ InvestorTrip