My Diary 559 ---ZT Who is behind this run?

Who is behind this run?

During my trip back to China last week, one of the questions that I was particularly interested in asking (mostly to retail investors like my friends who is not in this industry and their family members) was whether or not they had participated in this run of A share market's O/P show. The answer was indeed quite surprising, at least to me, that they are not if not at all. Reasons being, simply put, lack of either willingness or ability.

A) Most of them, regardless of whether or not making money in the past 3 years, are scared of the nose dive jump last year and are now much less confident to put their saving to the share market during such a hard time. B) Quite a large % of them are still having their positions hanging above 4000 level of Shanghai Composite index.

You might argue that we are now witnessing again a record number of new account opening in the past few months. True, it is the case but not the whole picture. A better figure to watch, is the active trading account number, which is much less promising compared with the former one. 

So intuitively, you might want to ask who has been and still is the major participant behind this run up then? While there is no obvious answer to this question, one thing catching my attention is the share holding level for mutual funds in China. 

After the sell off in Aug last year, the stock holding level for A Share mutual funds had been quite steady, around 65%, which is the minimum stock holding level for them. However, according to the latest report from Tian Xiang Investment Research, this number last week was 81.42%, rising from the week before's 78.04%. Mind you, for the most part of the bull market between 2006 and the beginning of 2008, this figure was well within a band of 74-80% and we are now surpassing the high end of that range already. As a result, we can quite safely assume that domestic institutional player as a group, both public and private, are the major participants behind this current run up; and more importantly they are now not having too many bullets left.

That being said, while QFII is now still relatively a small portion of the whole game (Around 7-12%), from the perspective of market participants analysis, 2 possible scenarios ahead are:

1. Retails are mostly not enticed and we had the institutional guys only playing the game, but they are now at or very close to a stage of running out. Then we got a top here. 

2. Despite the possible near turn pull back we might have, retails (call it greed of human being or wishful thinking on the macro picture improvement or over-optimism about Chinese Government's ability)can not help jumping into the water again to take over the torch , and make it shine brighter. Then another 2007? 

2 roads ahead, which way will we go?