China's benchmark stock indexes fell 4 percent Thursday after comments from "Commodities King" Jim Rogers that a bubble was forming in the domestic market.
Rogers appeared for 30 minutes during prime time on China Central Television, a mouthpiece of the central government, in what market observers saw as a sign Beijing was seeking to cool the overheating market by airing a shrewd investor's professional opinions.
Rogers, who co-founded the Quantum Fund with global financier George Soros, said the market was at bubble stage after he saw people crowding into Galaxy Securities, a mainland brokerage firm. Retail investors are now in a "hysterical" state of mind - a dangerous sign, Rogers said.
As soon as the central government introduces more powerful measures to assert control on the overheating economy, the bubble will burst, Rogers said.
His prediction has an ominous ring as his previous statements regarding China's stock market have proven correct. In May 2004, Rogers predicted the Chinese stock market would hit a record low within four to 16 months. Thirteen months later in June 2005, the market plunged to an historic low.
The China Banking Regulatory Commission has also warned banks in the country to be on the alert for any personal loans from their clients which may be misused for stock speculation as the regulator attempts to cool down the equity market.
During a recent meeting with local banks the CBRC issued guidelines for the lenders to follow, according to a report Thursday in government paper China Securities Journal.
However, Eugene Law Sheung-pui, head of research at Celestial Securities, said the market was over-reacting. "Although the China market will experience some short-term volatility, I think the fundamentals are sound. The Shanghai Composite Index could reach 3,500 points this year," he said.
Despite China announcing gross domestic product growth of 10.7 percent for last year, the benchmark Shanghai Composite Index fell Thursday to 2,857.36, down 3.96 percent. The Shenzhen Composite Index slumped 4.3 percent to 675.78.
In Hong Kong, the Hang Seng China Enterprises Index followed suit, sliding 148.26 points to 9,864.31.
Economists have expressed concerns that investments risks in China will grow as Beijing is likely to kick off another round of cooling measures.
Howard Wong, head of the Greater China Team at JF Asset Management, said Thursday he did not rule out the possibility the government would raise interest rates to rein in inflation, but he expected this would not have a great impact on the stock market in the long term. "I think China's A-share market can increase by about 20 percent to 30 percent this year," Wong said. "Even if Beijing sets restrictions on personal loans, the measures will have only a short-term impact on the stock market."
National Bureau of Statistics director Xie Fuzhan advised investors Thursday to show caution after total market capitalization more than doubled last year to more than 2.5 trillion yuan (HK$2.5 trillion).
(20min delay)