Stock Market Suffers a Year of Boom and Bust

Lu Han did not imagine he would experience such violent boom and bust in the stock market last year.

"Capital in my personal account shrank 65 percent last year, so I have to change my plan from buying an Audi sedan to a lower-priced one," said Lu, Development Department Manager of XNG Group.

Lu, who has invested in the stock market for 10 years, is still optimistic about long-term performance of the market and believes the index will grow to 6,000 points in three years.

The Shanghai Composite Index, which tracks the yuan-denominated A shares and hard currency B shares, slumped about 65 percent last year, wiping nearly US$3 trillion off the market value, making China the world's worst-performing major stock market of the year.

Of 1,602 listed companies on the Chinese mainland, only 34 stocks edged up last year while 1,196 dropped by more than 50 percent.

The securities regulator tightened approval of new share sales because of the sagging performance and, in the last year, Chinese companies raised 103.4 billion yuan (US$15 billion) from the domestic stock market via initial public offerings, a drop of 76.84 percent from a year earlier.

A total of 76 companies launched IPOs on the Shanghai and Shenzhen stock exchanges in the period, compared with 118 IPOs in 2007. There was no IPO in the fourth quarter.

Brokerages earned 2.32 billion yuan in underwriting fees from IPOs in the A-share market last year, a drop of 69.58 percent from a year earlier. Of 66 brokerages qualified to help companies listed on the mainland, only 31 got the business last year.

Citic Securities, the biggest underwriter of Chinese share sales, earned more underwriting fees than any other brokerage with market share of 22.36 percent, followed by China International Capital and Galaxy Securities.

"The year 2008 was definitely terrible for us," said Michael Liu, a broker at a Shanghai-based mid-sized securities house.

Liu, who asked us not to name his company, said his annual salary plus bonus was less than 100,000 yuan (US$14,646), half of the salary he earned in 2007.

Although Liu's company has yet to shed jobs, he said incomes would continue to decline this year if the market didn't improve. "I feel a bit lucky as some of my friends in other smaller brokerage houses have already been fired," said Liu. "This year's salary will definitely be lower but things are likely to turn better in the second half."

However, brokerages will be able to develop other revenue sources this year.

The China Securities Regulatory Commission is planning to let brokers start margin-lending and short-selling businesses which could earn them 6.6 billion yuan this year.

Margin trading lets brokers fund stock purchases by individual investors and short sales allow retail investors to sell borrowed securities, buy them back later at lower prices to profit from the difference.

Lu Han expected that the government would roll out more stimulus packages to bolster the economy and lift the stock market, including increasing disposable income to boost consumption, loosing monetary policies, and launching stock index futures and a growth enterprise board.

The State Council has called for effective measures to stabilize the stock market, including establishing a Nasdaq-like growth board. The board is intended to assist the development of start-up companies and firms with a lower listing threshold.

Jiang Yang, assistant to the chairman of the CSRC, said last month that the commission would launch various types of futures, including stock index futures, at an appropriate time to help stabilize the futures market.

"The gross domestic product is expected to grow at 8.2 percent this year. The economy growth will reach the bottom line in the early period and then rebound in the second half," said Citic Securities in a report.

It said there would be more investment chances this year compared with 2008.