Chinese Stocks Rally Fails to Entice Investors

The Shanghai Composite Index (SHCOMP)’s biggest weekly rally in more than a year is failing to stem equity outflows as the number of trading accounts containing funds declined to the lowest in two years.

The number of funded stock accounts dropped by about 49,000 to 55.55 million in the week to Dec. 7, the lowest level since the week to Nov. 26, 2010, regulatory data compiled by Bloomberg showed today. That’s down from a peak of 57.28 million such accounts in June 2011. The Shanghai Composite Index jumped 4.1 percent last week, the most since October 2011, after sinking to an almost four-year low on Dec. 3.

The Shanghai Composite, comprising mainly yuan-denominated A shares, is heading for a third straight year of losses amid concern a seven-quarter economic slowdown may drag on earnings and a possible wave of initial public offerings would draw funds from existing equities. There are now about 112 million empty stock accounts, the data show. The Shanghai gauge retreated 0.2 percent to 2,073.3 at 1:15 p.m. local time.

“If there’s reforms such as the suspending of IPOs and better economic data, investors will naturally return,” Zhang Yanbin, an analyst with Zheshang Securities Co. said in a phone interview in Shanghai. “We are only at the start of a stock rebound so we haven’t seen big returns yet. Once those returns start happening on a greater scale, we can expect investors to come back.”

Chinese companies listed on the mainland trade at the biggest discount to their Hong Kong-listed counterparts since January 2011, according to an index from Hang Seng Bank Ltd., signaling global investors are more positive than locals toward the nation’s shares.

Trading Value

The Hang Seng China Enterprises Index (HSCEI) of Chinese companies listed in Hong Kong has climbed 23 percent since Sept. 5, while the Shanghai Composite is 5.7 percent above its Dec. 3 low. A shares are restricted to domestic investors and a limited number of foreign institutions, while their H-share counterparts are open to overseas investors. The Hang Seng China index rose 1.1 percent today.

The number of stock-trading accounts that made transactions in A shares last week increased to 7.3 million from 6.1 million the week before, and up from 5.6 million in the week to Nov. 23, which was the lowest since at least January 2008, excluding weeks that had holidays.

The value of shares traded on the Shanghai exchange rose to 68.1 billion yuan ($10.9 billion) yesterday after falling to 33.1 billion yuan on Nov. 26, the least in four years.

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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