China's "mad bull" market unlikely to be revived

SHANGHAI (Reuters) - The mad bull isn't coming back. A 9.3 percent leap by China's stock market on Thursday, after the trading tax was cut, recalled the heights of the stock frenzy of 2006 and 2007, when millions of Chinese poured into the market for the first time in one of history's great equity bull runs.

But this time, there are signs that China's legion of individual investors has learned a painful lesson about risk during a market slide which halved share prices over the past six months.

The public trading halls of several Shanghai brokerages on Thursday contained little of the euphoria seen during last year's steep uptrend, dubbed the market's "mad bull" phase by local media.

"I sold half my shares and mutual funds today. I only see this as a short-term rebound, not the start of an uptrend," a retiree in his 60s, who identified himself as Wu, said at a Shanghai Securities branch in the city's financial district.

Wu said he had the equivalent of several thousand dollars of his savings in stocks, and would end up roughly breaking even on his investments.

"A rally of several days isn't enough to compensate you for the pain of having the value of your stocks halved," he said.

The feelings of people like Wu suggest any continued rally by China's stock market will not be as fevered or extend nearly as far as last year's bull run, analysts said.

"The market is unlikely to see the mad and bold speculation that we had last year," said Zhang Qi, analyst at Haitong Securities. "Investors have really learned a lesson."

The Shanghai Composite Index's .SSEC gain on Thursday, its second biggest rise this decade, was triggered by the government's decision to slash the stamp tax to 0.1 percent from 0.3 percent in an effort to halt the market's slide.

Turnover in Shanghai A shares more than doubled to a six-month high of 188.5 billion yuan ($27.0 billion), rivalling levels seen at the market's peaks last year. Individual investors are estimated to account for over 50 percent of trading.

But the higher turnover does not necessarily mean individual investors will keep bidding the market up. Many analysts said it merely showed a large part of the individual investor base was using stocks' bounce to reduce holdings.

"Such a huge trading volume just reflects disagreement among investors," said Gu Lingyun, fund manager at Orient Securities.

"There's money pouring in from people betting the government will announce more policies to support the market. But there's money going out because some people think China's slowing economy doesn't justify a rise in stocks."

SPECULATORS

The finance ministry hiked the stamp tax to 0.3 percent from 0.1 percent last May in order to curb wild trading by individual investors, which helped boost the main index over sixfold between June 2005 and last October.

So to many analysts, Wednesday's tax cut looked like a surrender by the government to public opinion.

While few people saw a possibility of a weak stock market triggering serious social unrest, the government is sensitive to public opinion, and may have been taken aback when last May's tax hike prompted a storm of criticism on the Internet.

In a report, investment bank Morgan Stanley described the tax cut as a "response to market speculators' demand".

Online investment chat rooms on Thursday discussed rumors the government might take other steps to appease individual investors, such as letting banks invest in stocks, or placing new restrictions on listed firms' ability to issue new shares.

But many chat room postings were much less optimistic. Some speculated authorities merely wanted to engineer a brief market bounce to smooth the Shanghai listing on Friday of Zijin Mining Group (601899.SS), China's second biggest gold producer.

Other postings described fears of another downturn, or even pledged not to invest in stocks again.

"I've finally made money, I've taken all my profits. I won't play any more," said an unnamed writer on popular investment site guba.hexun.com.

Zhang at Haitong Securities said he had noticed a change in individual investors' approach over the past few months, towards more careful research into companies.

"Before, some people didn't know anything about the companies which they bought, even what businesses the companies were in," he said. "That doesn't happen now."

($1 = 6.98 yuan)

(With reporting by Claire Zhang and Samuel Shen; Editing by Louise Heavens)