Stock investors display double vision

By Hong Liang (China Daily)

08:25, December 04, 2012

For many months, stock analysts have been trying to drum up some confidence in the moribund A-share market by alluding to the growing interest of overseas investors, including many hedge funds, that are looking for bargains.

Every positive, even if it's off-hand, comment about the Chinese stock market by the likes of Warren Buffett or George Soros has been enthusiastically promoted by the domestic media as the prelude to an influx of foreign investment capital that could help kick-start a bull run. But most investors don't seem to share the enthusiasm of these drum beaters, choosing rather to stay on the sidelines watching the most widely followed Shanghai Composite Index struggling to stay above the 2,000 level that is seen as a make-or-break psychological barrier.

Having been proven wrong so many times, even the most ardent stock market bulls are beginning to doubt whether the current market valuation is too high. This apparently prompted People's Daily to pose the question: Why has the stock market performed so badly when the economy is doing so well?

Perhaps more global fund managers are coming to realize that such a mismatch of economic factors cannot last. The improvement in economic fundamentals, indicated by a pickup in exports, in recent months has further boosted their confidence in the prospects of the Chinese stock market.

A Reuters report from Hong Kong last week stated that the shift in attitude of foreign investors toward Chinese equities is clear. Many foreign fund managers have started rebuilding their China equity portfolios, tempted by the low valuations after two years of market under-performance and new data showing that the economy is stabilizing.

Together, foreign investors have pumped nearly $4 billion into Chinese equity funds in the past two months, "trying to get in early on what they hope will be a sustained rally", the report said. The report cited Bank of America Merrill Lynch's global survey of fund managers, which showed confidence in China's economy was at a three-year high.

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