China Stock Investors Empty 199,000 Account Amid Rally

The biggest two-week rally in the Shanghai Composite Index (SHCOMP) in 13 months failed to draw Chinese stock investors, who emptied accounts at the second-fastest pace in 17 months last week.

The number of stock accounts containing funds dropped by about 199,000 to 55.35 million in the week to Dec. 14, the lowest level since the week to Nov. 19, 2010, regulatory data compiled by Bloomberg show. Some 1.5 million accounts have been emptied this year, leaving a record 112 million without funds.

The benchmark index jumped 8.6 percent in the two weeks through Dec. 14 after the government signaled it will boost spending on urban development and amid speculation state-backed institutions were buying shares. The gauge is heading for a third straight year of losses and is down 65 percent from its October 2007 peak. The index dropped 0.2 percent to 2,158.51 at 11:02 a.m. today.

“Retail confidence is still not very strong,” said Terrace Chum, Hong Kong-based fund manager at Manulife Asset Management, which oversees $220 billion. “People got burnt over the last few years. You need a more sustainable uptrend, then the retail investors will come back.”

The number of stock-trading accounts that made transactions in A shares last week increased to 8.6 million from 7.3 million the previous week, the highest level since the week to Sept. 14 and in line with the 12-month average of 8.6 million. Investors opened 101,743 accounts to trade stocks, the most since the week to Sept. 28.

Urban Development

Industrial and materials producers have been among the biggest gainers in Chinese stocks since Dec. 4, when the official Xinhua News Agency cited the nation’s new leaders as saying they would promote urban development. The two industry gauges in the CSI 300 Index (SHSZ300) have risen at least 9.7 percent.

“Urbanization is a historic task with the country’s modernization drive, and a main driver to boost domestic consumption,” the China Daily reported Dec. 17, citing an official statement from an annual economic conference, which sets the tone for economic policies the following year.

Shares have also been lifted by signs the government will allow more overseas funds to enter the market. China may relax or abolish a rule that requires Renminbi Qualified Foreign Institutional Investors to keep most of their funds in bonds, the Hong Kong Monetary Authority said last week.

Valuations Slump

China removed a $1 billion ceiling on investments by overseas sovereign wealth funds and central banks in its capital markets, acccording to revised regulations posted Dec. 14 on the State Administration of Foreign Exchange’s website. The regulator kept the overall quota for qualified foreign institutional investors at $80 billion. Approved quotas for QFII funds total $36.04 billion, or less than 2 percent of stock- market value.

The Shanghai Composite slumped to an almost four-year low on Dec. 3, when valuations slid to a record low of 10.8 times reported earnings. Shares now trade at a multiple of 11.9, the highest in five months.

The value of shares traded on the Shanghai exchange has fallen for the past three days after jumping on Dec. 14 to 111 billion yuan ($17.8 billion), the highest since May 2. That’s up from a four-year low of 33.1 billion yuan on Nov. 26.

To contact the reporter on this story: Richard Frost in Hong Kong at rfrost4@bloomberg.net

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

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