China´s capital streams have been turning to the stock markets, even when the economy is slowing down. A major correction seems inevitable, tells Beida accounting professor Paul Gillis at VOA. And while China´s stock markets are used to rough times, for the many newcomers it might be a nasty awakening.
“A bubble has been formed, and there might be a major correction anytime. It is a little frightening to see the situation developing because a lot of investors are uneducated people, who might suffer,” said Paul Gillis, co-executive director of the MBA program at Peking University’s Guanghua School of Management.
Unsophisticated retail investors, particularly, are at risk because they often put all of their savings into stock markets, so a market slump leaves them with nothing for retirement, education for their children or other major needs.
There are several reasons behind the frenzied investments that have drive up stock prices, including low overall interest rates in banks. Another important reason is the government’s decision to cut interest rates on investment products aimed at wealthier people, Gillis said.
Falling property prices have also led many people to divert their savings to stocks, which has never been the mainstay for Chinese investors. There has been a rise in the number of active stock accounts in China, which grew to 111 million, up from around 95 million a year ago.
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