Small Funds Stoke China’s Stock Rally

29 May 2015 | Author: | No comments yet »

Asia Stocks Pare Monthly Loss as Oil Rises; Europe Shares Steady.

TOKYO — Chinese share markets extended a bruising sell-off on Friday after the previous day’s plunge, while the dollar took a breather from a sharp run up this week.The Shanghai Composite Index lost 0.2 percent to 4,611.75 at the 3 p.m. close, after swinging between gains of as much as 1.7 percent and losses of 4.1 percent.

The rally, combined with new government rules that allowed these so-called private-securities funds to raise cash directly from wealthy investors, have spurred an explosion in growth. The gauge tumbled 6.5 percent on Thursday after brokerages tightened lending restrictions and the central bank drained cash from the financial system. So far this year, 4,153 funds have been launched, attracting 454 billion yuan ($73 billion) from investors, a 561% increase over what they took in during the same period last year, according to UBS. The measure’s 10-day volatility index was at the highest level in four months. “The market is likely going to experience massive volatility,” said Gerry Alfonso, a Shanghai-based director at Shenwan Hongyuan Group Co. “People are getting nervous and having some very short time frames for investment.

UBSN -0.72 % The China Securities Regulatory Commission says the country now has 6,653 private-securities investment products, with total assets of 1.07 trillion yuan. That is in spite of the fact that private-securities funds have in total just one-third of the assets of stock-focused mutual funds, according to Z-Ben Advisors, which tracks China’s fund industry. With valuations divorced from economic fundamentals, the heightened volatility we have seen is likely to continue.” European shares dropped overnight, with Germany’s DAX, France’s CAC and Greek stocks falling, while periphery eurozone bond yields rose.

The greenback was knocked off the peak as Japanese government officials used stronger language to describe recent moves, with Finance Minister Taro Aso saying the yen’s recent drop had been “rough”. Finance ministers gathering in Germany for a Group of Seven meeting scoffed at Greece’s optimism over debt repayments saying it needs stronger commitments to overhaul its economy. “The Chinese market looks hot and frothy but I wouldn’t say it’s a bubble,” said Evan Lucas, a market strategist at IG Ltd. in Melbourne. “There are risks out there. Ye Fei, who manages the Yi Tian private securities fund, has ridden the current boom as well as the last one in 2007, which ultimately ended badly for him and his investors. “The bull-market is a once in a seven-year opportunity,” said Mr.

Ye. “For our industry, either you don’t make money or you make very big money.” His fund is one of the best performers this year, and he’s renting space in China’s tallest office tower in Shanghai, with plans to open offices in Beijing and Shenzhen. Greece, which had claimed a solution could be reached by Sunday, hasn’t said how it will pay almost 1.6 billion euros ($1.75 billion) in IMF payments scheduled for next month. The grassroots investor, as he calls himself, started studying stocks when he was 15, taking stock prices from cable TV and making charts on electrocardiogram paper for his father.

In 2007, he gained fame for winning the “most popular” award in a mock portfolio competition run by a finance website and finishing 13th out of 400,000 contestants. The Bloomberg Dollar Spot Index, a gauge of the currency versus 10 major peers, has gained 1 percent this week and is up 2.3 percent in May, on track for its 10th climb in 11 months. “The U.S. dollar rally is getting to the stage where it’s overdone and there is room for correction,” said Derek Mumford, director at Rochford Capital, a currency risk-management company in Sydney. “I don’t think that the U.S. economy is that strong.” A run of more positive U.S. data has bolstered bets rates will be boosted sooner rather than later, with Federal Reserve Chair Janet Yellen saying last week that borrowing costs will be increased this year. As ChiNext shot up another 60%, he then set his sights on Shanghai, where he’s going to pay a similar amount to rent an office on the 55th floor of the 128-story Shanghai Tower, which will be the tallest skyscraper in China when it opens this summer.

Ore with 62 percent content delivered to Qingdao was at $62.33 a dry metric ton on Thursday, 11 percent higher in May, according to Metal Bulletin Ltd. Ye remains confident despite the Shanghai market’s 6.5% fall Thursday. “I tell people if after this bull market run, they still need to work, then they are losers,” he said on a call from Shenzhen, where he was recruiting VIP investors. His new fund is called Yitian China Dream Third Board, referring to a new over-the-counter stock market in Beijing that’s generating lots of buzz in China.

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