During the morning hours of a day in early February, zealous investors lined up at the Zhongtou Exchange to use the hall's computers to turn their investment potions into stock market magic.

Those who weren't lined up clustered into small intermingling groups to trade tidbits of the latest stock market news.

Winners are grinners and this woman, like many small-time investors, enjoys watching her rising shares at the stock market in Nanjing of East China's Jiangsu Province. [China Daily]

Many investors, such as 68-year-old Wang Guowen, were silver-haired.

Wang appeared especially confident, because the seafood company retiree relies on the advice of a dependable thinktank his daugter. Most mornings, she calls him from the United States with investment advice. If she doesn't, he stays home.

With the Chinese stock market undergoing one of its most bullish booms over the past year, throngs of Chinese have been lured into the risky business. Some put their life savings on the line, but increasingly, they are finding that not all that glitters is gold.

Today, the average Chinese investor's understanding of the stock market which is remarkably different from its Western counterparts is still fairly immature.

The stock market's recent waves have washed away many weaker-minded investors, while helping the innovative develop their own creative ways of investing.

Small investors

"I'm too old to keep up with the ever-changing policies and conditions," Wang admitted. "My daughter worries that things change too quickly, so she analyzes the trends for us on the Internet."

Before last January, the exchange hall was so empty that one of its guards said he felt lonely.

After five years of bearish performance, the Chinese stock market took a turn for the bullish early last year.

Since then, the Shanghai Composite Index the major indicator of the Chinese stock market has risen from a little more than 1,000 points to nearly 3,000.

Financial funds (jijin in Chinese) have become an active element of the latest bullish trend in the Chinese market. Wu Changqing

Small investors like Zhu Shuzhen, 64, don't care too much about macro policies. To the Beijing resident, the bullish market means one thing: Her son-in-law is smiling at her.

"During the bearish period, I lost most of the 500,000 yuan ($64,100) he lent to me to invest in stocks. I've recovered most losses," Zhu said.

However, neither Zhu nor Wang has pulled a profit since the last bullish period in 2001. Many of their stocks are old, and their growth has been limited compared to many newly issued stocks. "Although I know the new stocks are more profitable, I can't sell my old stocks for such a low price," Wang said.

One of the stocks he first purchased for 15 yuan ($1.9) has stayed at 4 yuan (US 50 cents) since the middle of last year.

Fund managers

A noticeable trend has emerged during the current bull run: Increasingly, private funds controlled by managers with a keen sense of the market are emerging.

A Beijing-based private fund manager who declined to give his name said members of securities and fund management circles rarely gathered for dinner. "It wasn't because we fund professionals were too poor to afford a meal, but rather, because in the long bearish market, people had no interest in casual talk," said the manager, who recently left a major State-owned securities firm to work for a private company.

But since the market began to boom, fund managers have been gathering more often despite their busy schedules. But stock information isn't the only thing they exchange over dinner and drinks.

"We mostly share our personal business plans, because the overall market is so booming," he said.

Many of his colleagues have transferred from securities companies or publicly sold fund firms either State-owned or Sino-foreign joint ventures to privately fund firms, where the commissions are much higher. The fund manager charges clients with a 20 percent commission.

Veteran fund manager Shi Jinyong prefers to stay at the State-owned Datong Securities Co Ltd in Taiyuan, of North China's Shanxi Province. He said the emerging private funds still don't have a legal status, but they have been widely spreading throughout the securities market.

Private funds attract investors among friends or business partners. Usually, clients' money is stored in their own securities accounts, which are protected by two passwords: a securities password and a deposit password. The clients give the securities passwords to private fund managers to operate stocks, but these managers can't withdraw money without the deposit password.

It's a murky practice, and some wonder whether such private funds illegally raise money or just help friends deal on the stock market.

Industry watchdog China Securities Regulatory Commission (CSRC) has been studying a law governing private funds, media report.

But Shi said most private funds keep their word, because unlike publicly sold funds, which are supported by banks, credit remains private funds' best weapon to win clients.

Lurking risks

Shi said that risks are compounding for investors pouring their money into the booming market.

He said that during the past six months his company's system underwent strain because of massive booms in the number of new accounts opened. Both times, he points out, the market was in decline.

"Everyone thinks the declines are temporary," Shi said.

On the last day of January, the Shanghai Composite Index suddenly plummeted 144 points, or 4.9 percent, to close at 2,786. Despite the dramatic drop, most securities analysts believe it is an adjustment of the bullish market, rather than a warning that it is taking a bearish turn.

A Beijing bank manager, who refused to be identified, told China Daily that the number of clients mortgaging their properties for large cash loans has increased dramatically in recent months. "In our contracts, we ask them not to use the money for stock speculation, but in practice, it is very difficult to control," the manager said. "They don't consider that if they lose in the stock market, they may lose their properties."

Shi said that one of his clients asked him the second day after he opened an account: "How could my stock values decline?"

"The words are unimaginable for a market subject to regular fluctuations," Shi said. "For investors, the biggest risk is their lack of an awareness of risk."

(China Daily 02/05/2007 page8)