Will

Chinese

Stock

MarketsMirror

the

Behaviour

of

theNASDAQ?-Where

is

the

solution?Christopher

PollChairman,Greater

China

Consultancy

Ltd.,3

QUESTIONS

RAISED

HOW

TO

DEFINE

A

“WELL

REGULATEDMARKET”?

WHAT

RELEVANCE

A

PRICE/EARNINGSRATIO?

IF

INSTITUTIONAL

FUNDS

ARE

ASTABILISING

FACTOR

FOR

THE

STOCKMARKET,

WHY

ARE

DEVELOPEDMARKETS

SO

VOLATILE?HOW

TO

DEFINE

A

“WELLREGULATED

MARKET”?The

Financial

Markets

areDynamicBusiness

is

“Proactive”

But

Regulators

are

“Reactive”

not“Proactive

The

System

of

Regulation

andEnforcement

can

never

be

completelyFlexible

and

DynamicImportance

of

Fiduciary

ResponsibilityFinancial

InfrastructureGovernmentFinancialPolicemenInstitutionalManagersMAIN

FACTORS

FOR

FUNDSCentred

aroundPublicInvestorsPRIVATE

SECTORLawyersAccountantsInvestmentBankersStockBrokersCommerciaBanksConflict

of

Interest?Conflict

of

InterestWho

is

the

client?

Who

are

the

FinancialPolicemanResponsible

to?

Can

Regulation

be

Protect

withFinancialPolicemenbeing

Proactive?INVESTORSInstitutionalPrivatePensionsInsuranceMutual

FundsInvestors’

Confidence=Investors’

EducationConfidenceEducationInvestorsInvestor

Protection/ConfidenceTransparencyAccountabilityLeads

to:Easier

and

more

effective

enforcement.Increased

efficiency

reduces

costs.Improved

flexibility

of

the

infrastructurto

respond

effectively

and

competitively.Efficient

InfrastructureA

Chinese

Tailor

Made

Solution

for

the

Chinese

Fund

IndustryInvestors’behaviourStock

InvestorsFundInvestorsSecuritiesDealers

BrokersSecuritiesInvestmentAdvisorsFundManagersSecuritiesExchangeOTCFuturesExchangeSEC/CSRCCBC/PBCWHAT

RELEVANCE

APRICE/EARNINGS

RATIO?Chinese

QuotedStocks

CorporateProfits???NASDAQCorporate

Profits???Confidence$$$1995

-

2000CIF

CONFIDENCE

IS

LOWTHEN

MONEY

FLOW

IS

MINUTE$$$$$$$$$$$$$$$$$$$IF

CONFIDENCE

IS

HIGHCONFIDENCETHEN

MONEY

FLOW

IS

LARGEWhat

is

the

Criteria

ForInvesting?1.

What

do

you

think

is

the

most

importantinfluence

on

the

stock

market

inChina

today?

The

historic

balance

sheets

and

profit

andloss

accounts

of

the

quoted

companies-

6

Thefuture

prospects

for

corporate

earnings-10Government

policy-62Govt.

investigation

into

mal

practices15

The

overall

economic

growth

of

the

Chineseeconomy-27China"s

entry

into

the

WTO-82.

How

do

you

as

an

investor

analyse

the

fairvalue

of

the

companies

you

buy

&

sell?By

price

earnings

ratio-35By

relationship

to

net

asset

vale-5By

the

latest

rumour-58

By

the

business

sector

the

company

isinvolved

in-21By

multiple

of

sales

revenue-93.

Whatdoyou

think

should

be

the

averageprospective

price

earnings

ratio

for

non-technology

stocks?under

15

times-015

to

25

times-18above

25-1104.

Whatdoyou

think

should

be

the

averageprospective

price

earnings

ratio?under

15

times-015

to

25

times-125

to

50-16over

50-1115.

How

do

you

measure

investment

risk?By

measuring

the

volatility

of

the

stock-31By

measuring

the

volatility

of

the

stock

market

By

estimating

the

accuracy

of

disclosedinformation-16By

estimating

the

risk

of

fraud-17By

analysing

historic

returns-13

By

comparing

with

and

adjusting

for

a

"risk

freemeasure

such

as

a

deposit

rate-8At

what

level

do

you

think

theShanghai

A

share

market

willbe

on

31st

December

2001?most

think

it

willbe

above

2500Today

it

is

2140At

what

level

do

you

think

theShanghai

B

share

market

willbe

on

31st

December

2001?most

think

it

will

be

above

200Today

it

is

183IF

INSTITUTIONAL

FUNDS

ARE

ASTABILISING

FACTOR

FOR

THESTOCK

MARKET,

WHY

AREDEVELOPED

MARKETS

SOVOLATILE?Factors

Effecting

InvestmentTime

HorizonsConfidence

in

Long

Term

TrendsConfidence

in

Information

DisclosureVolatility

of

MarketsLiquidity

ofMarketsProfit

ForecastPublic

Scrutiny

of

PerformanceEACM

100:

Equal

Weighted

(Rebalanced

Annually)

Index

of

Hedge

Fund

Indices

describedon

PreChina

versus

Western

Markets

Limited

sense

ofAccountabilityRisk

Chinese

BusinessPhilosophy

Reluctance

toIncentivise

ExecutiveManagers

EntrepreneursUnderstand

Cause&

ConsequenceLittle

Understanding

of

?

Ri