Speculators exploiting tragedy for own gains

By Su Peike Source:Global Times Published: 2013-4-25 22:43:00

Whenever a major natural disaster strikes in China, there seems always to be speculators ready to take advantage of the situation by manipulating inexperienced investors.

Back in 2008, when Wenchuan was devastated by an earthquake that claimed more than 60,000 lives, several influential market players put forward calls not to sell stocks of firms based in Sichuan Province so that these businesses could retain capital for rebuilding. It wasn't long before sensational rumors also began percolating through the market that several prominent fund managers had received calls from the China Securities Regulatory Commission (CSRC) ordering them to buy stocks in order to keep the market stable. Hordes of smaller retail investors pounced on this seemingly credible "news" and began pouring capital into listed companies that were either based in Sichuan or directly impacted by the disaster. For several days in a row, these stocks shot to the 10-percent daily limit as more and more investors got involved. But when big investors took their profits, the speculative bubble burst and left many retail investors with huge losses.

But more than five years later, similar tricks were on display in the wake of the weekend earthquake in Ya'an county, Sichuan Province. On Monday, stocks of Sichuan-based construction and building material companies saw their prices rally in what was otherwise a mostly down day for the markets. These shares found support on widespread beliefs that post-disaster reconstruction efforts would translate into more orders for these firms, which would of course mean more revenue and profits. Such ideas seemed reasonable on the surface, but just didn't hold up under scrutiny.

With most of the clean-up work that awaits afflicted areas of Sichuan, the goal will be merely recovery. With the government likely to be keeping a close watch on reconstruction and revitalization plans, few companies would dare use this disaster as an opportunity to gouge individuals or businesses. In that case, these stocks aren't exactly standing on the cusp of substantial improvements to their earnings.

Sadly though, after several analysts and speculators recommended the purchase of disaster-related stocks, many small and inexperienced investors once again found themselves on the losing side of a dangerous investment bubble. In fact, most of these stocks plunged Tuesday and continue to show signs of weakness.

The CSRC and other regulators should do something to stop speculators from manipulating stock prices with false and misleading information after natural disasters. Conditions are already bearish at mainland markets as it is, so letting speculators walk all over smaller investors is only going to send capital fleeing.

The author is chief researcher on public policy at the University of International Business and Economics. spk518@163.com.

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