China Study: Is it Lucky Numbers, or do Fundamentals Count? Revealing the Investment Behavior that's Driving the Shanghai Stock Market

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A new study by Kapronasia and Amber shows that individual Shanghai A-Share investors have a solid understanding of the market, yet continue to invest even though they believe the market is experiencing a bubble.

The Shanghai stock market continues to defy expectations -- up nearly 100 percent in 2007. Most of the commentary on the Shanghai market depicts the average Chinese investor as unknowledgeable and following the herd. However, a recent study by Kapronasia ( and Amber ( shows that individual Shanghai A-share investors are actually much more market savvy than commonly thought.

"Although influences like lucky numbers and family advice still impact some decision making, the reality is that most investment decisions today are made on the basis of solid indicators like company fundamentals and straightforward economics," said Zennon Kapron of Kapronasia. "However, even with this knowledge, Chinese investors still invest in a market that they clearly view as overvalued."

The study found that 70 percent of investors believe that the market is experiencing a bubble, yet more than 67 percent plan on investing more in the stock market within the next year.

"In China, investment choices for the average individual are limited. Real estate is one option and investment there has grown tremendously but the relatively high entry cost makes it difficult for many," said Laura Mitchelson of Amber. "Investors know that the stock market is overvalued. The question is whether they believe the exuberance will continue. This research shows the answer to be 'yes' and most people plan to invest more."

The study was conducted in November 2007 across the cities of Beijing, Shanghai, Guangzhou, Chengdu, Hangzhou and Nanjing and is one of the first statistically relevant analyses to explore the behavior of investors on the Shanghai A-share market.

Based on interviews with over 600 investors, the report takes an in-depth look at who the investors are, what they know, their investment behavior and what they expect in the future. The report answers questions such as percentage of income invested in the market, motivations for buying or selling a particular stock, and what external factors influence decisions.

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