China Regulator Urges Caution as Stocks Jump to Seven-Year Highs

China’s securities regulator urged investors to consider risks from the nation’s surging stock market after the benchmark index jumped to levels last seen before the global financial crisis in 2008.

The Shanghai Composite Index rose for an eighth day on Friday, climbing 1 percent to 3,617.32, the highest close since May 2008 and the longest stretch of gains since Oct. 14. The gauge rallied 7.3 percent this week, as transaction volumes soared, margin trading surged to all-time highs and new account openings rebounded to the highest level since December.

“Investors should be cautious about market risks,” an unidentified spokesman for the China Securities Regulatory Commission said in a statement today on its microblog. “We shouldn’t be thinking if we don’t buy now, we will miss it.”

A previous warning from the CSRC was ignored. The Shanghai Composite jumped 2.8 percent to surpass 3,000 on Dec. 8, the first trading day after the securities body on Dec. 5 cautioned investors about growing market risks.

The valuations of some listed companies are “relatively high,” the CSRC spokesman said in Friday’s statement. “There are about 700 companies in the Shanghai and Shenzhen stock exchanges with a price-earnings ratio of above 100,” the spokesman said.

Nicholas Yeo, the Hong Kong-based head of Chinese equities at Aberdeen Asset Management, said this week there’s a bubble in the nation’s small-cap stocks, which are trading at record highs after climbing more than four times faster than the broader market this year. The ChiNext Index is valued at 83 times reported profit, versus multiples of about 17 for both the Shanghai Composite Index and the CSI 300 Index of the largest companies.

Growth Outlook

Stocks have been rallying on speculation the government won’t allow economic growth to fall below this year’s target of 7 percent, according to Hao Hong, head of China research at Bocom International Holdings Co. Policy makers will take action if growth drifts toward the lower limit of its range and cuts into employment or wages, Premier Li Keqiang said at the close of the National People’s Congress on March 15.

“Recent A-share gains also reflect market recognition of support for economic growth and controllable financial risks,” the CSRC said in the statement.

The CSRC also said it’s also conducting spot-checks on brokerages, mutual funds, futures companies and private equity firms to ensure they are compliant.

— With assistance by Qi Ding, and Allen Wan

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