The Pit - IMI Trust

On Wednesday 426,000 new trading accounts were reportedly opened in China. This amount was up on the average daily opening of accounts of 300,000.

That is insane! This is equivalant to the entire population of Australia opening an account over the next 50 days.

I am sure that there are kids coming up through Uni looking at Stock brokers as the new doctors. In fact, it is common place that social conversations through university students and adults, is based around the action taking place on the markets.

A couple of weeks ago, they announced a trippling of the taxes on trades being placed. Whilst the market took a 6% hit, it didn’t stop over 400,000 accounts being opened. Now the word bubble is starting to enter the market place. The Shanghai Index has nearly doubled this year alone.

What’s interesting is the contrast to the last exhchanges to experience a bubble, and have a dramatic pop. Whilst almost every exchange on the planet has their indices hitting all new highs, there a 2 notable absentees from that list. Tokyo’s Nikkei index and the US tech focused NASDAQ.

Both of these indices are a long way from their highs, and it has been severals years since they collapsed. What is more… they both have a long way to go, to reach previous highs. The companies which fill those indices are also a long way off their highest share prices.

With so much cash in the markets at the moment, any brief down turn are being corrected by share buy-backs or private equity. This is giving investors confidence in US markets, but it is the hype around IPO’s driving forward the excitement of the Chinese stocks. 

So whilst Chinese Stock Brokers are the flavour of the last few years, the future may hold some interesting challenges ahead. What is one to do when the hype which has inflated the market, is dramatically let out?