Experts advise caution among investors
China's A-share stock market went on a roller-coaster ride on Tuesday following a slump on Friday, and experts said the market correction could continue and retail investors should be more cautious.
The benchmark Shanghai Composite Index fell as much as 4.7 percent during trading but closed up 2.19 percent from Friday at 4,576.49 points.
The smaller Shenzhen bourse also recovered significantly on the first trading day after the three-day Dragon Boat Festival holidays. The Shenzhen Component Index closed up 2.04 percent at 16,045.99 points on Tuesday, after a dive of 6.03 percent on Friday.
The rebound came after Shanghai stocks suffered their steepest weekly drop in seven years last week, in a fresh sign of increased volatility in the mainland stock market.
Aviation, insurance, securities and banking stocks saw the biggest gains on Tuesday, while papermaking, chemical fiber and real estate shares declined.
"The rebound was a response to the slump on Friday," Li Daxiao, chief economist with Shenzhen-based Yingda Securities Co, told the Global Times on Tuesday.
Those stocks that are overvalued will see a price drop while the prices of undervalued ones will rise; however, there are more overvalued stocks in the market, according to Li.
"The stock market may linger around 4,500 points for now but I am still optimistic about its future performance," Xu Guangfu, chief investment officer at Shanghai-based Zhongjiu Group, told the Global Times on Tuesday.
The Shanghai Composite Index soared to 5,178.19 points on June 12, the highest level in nearly seven years.
The stock market surge in recent months has attracted a large inflow of new funds, especially from retail investors. So far this year, a total of 3.5 trillion yuan ($563.8 billion) has been invested into China's A-share market, Shanghai-based National Business Daily reported on Tuesday.
Li said that retail investors should reduce their leverage if their investments are based on loans or selling their properties.
Although the slump on Friday caused worries among mainland investors, 7.8 billion yuan was invested in the Shanghai Stock Exchange through the Shanghai-Hong Kong Stock Connect scheme during the day, leaving just 5.196 billion yuan of the daily quota unused, Guangzhou-based Nanfang Daily reported on Tuesday.
This was the second-largest daily investment through the stock connect program since it was launched on November 17, 2014, the report said, noting that this indicates there are still investment opportunities in the stock market.
While retail investors were pouring funds into the market, executives at mainland listed-companies have been selling shares in record quantities.
According to data from HSBC, so far this year, executives at mainland- listed companies have sold 460 billion yuan worth of shares, and the average monthly share sales reached 80 billion yuan, much higher than in 2013 and 2014, financial news portal online.barrons.com reported on Tuesday.
Liu Shuwei, a scholar at the Central University of Finance and Economics, said in a Weibo post on June 17 that company executives selling their shares on such a large scale indicates problems in their companies' business performance, and could bring risks for investors.
Executives should inform investors a month in advance of selling their shares, Liu said.
But as long as executives do not release false or misleading information to cheat investors, there is nothing wrong in selling their shares, Xu said, noting that gains from the sales is payback for their work and can also encourage more people to start their own businesses.
