China Regulator Urges Caution on Stocks as Trading Hits Record

Investors must consider risks while putting money into stocks, China’s securities regulator warned yesterday after a buying spree drove daily trading turnover to above 1 trillion yuan ($163 billion) for the first time.

Illegal activities including stock manipulation have recently been “raising their head” and investors should invest rationally, Deng Ge, a spokesman for the China Securities Regulatory Commission, said in a statement on the agency’s website. A stable market is important for the economy, Ge said.

The Shanghai Composite Index advanced 1.3 percent to close at 2,937.65 yesterday, after posting the biggest price swings in four years. The measure gained as much as 2.7 percent and fell 3 percent within the first 90 minutes of trade. For the week, the index jumped 9.5 percent, the most since February 2009.

“I hope investors, especially small and medium investors that are new to the market, invest rationally, respect the market, fear the market and bear in mind the risks present in the stock market,” Ge said.

The Shanghai index’s 21 percent rally over the past month, the most among 93 global indexes tracked by Bloomberg, is spurring investors to open share accounts at the fastest pace in three years and boosting turnover to record highs. The value of shares that changed hands on the Shanghai and Shenzhen stock exchanges surged to a record 1.05 trillion yuan.

Resurgence, Skeptics

China’s stock resurgence has also reduced the odds of the central bank cutting lenders’ reserve-requirement ratios as such a move would be akin to “adding oil to the fire,” said Ting Lu, Bank of America Corp.’s head of Greater China economics in Hong Kong. The Shanghai index has rebounded 39 percent this year on speculation the central bank will loosen monetary policy to support economic growth. It dropped 35 percent from the start of 2010 through the end of last year.

China’s world-beating equity rally is drawing out skeptics who say the gains are amplified by borrowed money and don’t reflect the nation’s economic fundamentals.

The gains are “irrational,” said Ken Peng, a strategist at Citigroup Inc.’s private bank in Hong Kong. The advance is another bubble driven by leveraged traders, said Andy Xie, a former World Bank economist who was one of the 50 most influential people in global finance, according to Bloomberg Markets magazine rankings last year.

“We note that recently there has been stock price manipulation and illegal activities surfacing,” the CSRC’s Ge said. “We will increase market supervision, resolutely crack down and earnestly safeguard the normal market order.”

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