China's sharemarket is on fire. The Shanghai Stock Market Index is up 20 per cent just this month, 30 per cent for the year and almost 100 per cent over 12 months. This week it's been the turn of Hong Kong's large cap index which surged 10 per cent. This is a bull market of such scale and veracity that is impossible to ignore given the sheer numbers involved.
On Friday, $US250 billion of Chinese stocks changed hands, which represented more than the combined volume in US equity markets. And as if to celebrate the giddy rise, a stockbroker, GF Securities, floated itself on the Hong Stock Exchange and duly surged 42 per cent. The fund managers who got allocations enjoyed a massive payday based entirely on Chinese sharemarket hubris.
But the frenzy that is the state of the Chinese sharemarket naturally has Western investors scoffing that the epic flow of 'dumb' money into Chinese stocks is at odds with fundamentals and is fuelling a speculative bubble. And they have a point. There's real evidence to show that the new wave of investors in Chinese stocks, on paper, is not that smart. A well-circulated Bloomberg briefs graphic breaking down the level of education attained shows that investors piling into the market today have on aggregate a lower level of education than the previous vintage of speculators. The number of punters with a high school degree or less now accounts for more than half of new investors, compared with 26 per cent of existing investors