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Bubbles in stock market are inevitable, expert

www.chinanews.cn 2007-05-26 13:46:25

Chinanews, Hong Kong, May 26 �C Chinese stock market has entered into a
bullish period. Many people fear that there might be bubbles in it and
such bubbles might burst at any time. In responding to such worry, Xiang
Huaicheng, president of the National Council for Social Security Funds,
said on Thursday that at present, media are discussing too much about the
possible bubbles in the stock market. However, it is unavoidable for the
stock market to have bubbles. Stock market is just like beer: if there
are no bubbles in the beer, it is not beer any more. Faced with the
extraordinary bullish performance, what investors should do is to control
risks and be prepared for any fluctuations in the stock market, Hong
Kong-based Wen Wei Po reported.
He made the remarks when attending a luncheon hosted by the Hong Kong
provincial-level fraternity of Chinese People��s Political Consultative
Conference.
At the luncheon, Xiang said that there were some problems existing in the
current mainland stock market, that the index had risen too quickly and
there might be bubbles in it. However, he said, we may use beer as a
metaphor to describe the current situation in the stock market: it may
not be a bad thing for beer to contain some bubbles, as long as there
aren��t too many bubbles in it.
Despite this, Xiang also said that the index had risen too quickly within
a short time. Right now, the average P/E ratio in the mainland stock
market has already reached 40, or even 50. Usually, the average P/E ratio
for a new stock market may be around 15. In Hong Kong, such ratio merely
has reached 18. This shows that stock prices in the mainland stock market
are relatively high, he pointed out.
He said that right now, the total number of stock account holders in the
mainland has already reached 100 million. Even students and elderly
people now plung into the stock market. According to him, mainland
investors should be fully aware of the possible risks involved in the
stock market and take measures to control the risks. In addition,
investors should understand that fluctuations in the stock market are
unavoidable and they should be prepared for the possible big drop in the
market.

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