Interest from overseas is also strong. Since the spring 16 funds have been formed and they have raised a total of more than pounds 300m ready to invest in China. Considering that the stock markets of Shanghai and Shenzhen are tiny, most of these have had difficulty investing their money.
For example, BZW has a pounds 21m unit trust, which it has so far sold only to Asian investors but may market here. The fund has invested only a fraction of its money in the People's Republic and left the rest in cash and in Hong Kong and Taiwan shares.
Morgan Grenfell, which raised pounds 26m in April through a Hong Kong listing, has invested 30 per cent in China, 20 per cent in China-related stocks in Hong Kong and the rest in cash. GT has managed to invest 76 per cent of its Hong Kong unit trust in the republic.
Notwithstanding the fact that most of these funds have a small exposure to China, they have mostly performed brilliantly. The newly developed Credit Lyonnais Securities Asia index, which tracks the 36 shares listed on the Shanghai and Shenzhen exchanges, has more than doubled in four months.
The rise, which helps to explain the scramble for shares among domestic investors, has taken the few listed companies to multiples of 50 times earnings and more. These are buoyed by the absurd imbalance between supply and demand rather than the immediate prospects for the companies, however strong the local economy.
The number of companies gaining listings is set to jump. Not all shares can be bought by foreigners but the amount of equity available to overseas investors is expected to triple by the end of the year. This trend is bound to continue as securitisation takes hold. Even rural collectives are issuing shares to peasants.
For the time being prices look stretched. Most fund managers admit as much and some warn of a speculative bubble about to burst.
Cautious investors should hold off.Reuse content