Highlights
Disney dream over for speculators
By Andrew Moody, Li Xiang and Zhou Yan (China Daily)
Updated: 2009-11-09 08:25
Soaring shares
"Its shares surged at a pace beyond my expectation," said Huang, who works for a publishing company in Shanghai.
He sold his holding on 0ct 22, when the stock had made a return of 17.4 percent, fearing any gain would be wiped away in the next speculation.
"I was so scared about its growth rate at that moment. I felt the risk was too high to continue holding it," he said.
At times during the three-year saga of speculation surrounding the project there have been some highly unusual movements in share prices
On May 15 this year, Jielong's price was frozen in a straight line at 15.4 yuan for 70 minutes, suggesting to some that there were unusual forces at work manipulating its price.
"It is very likely that a number of accounts were manipulated by speculative investors at the same time to avoid regulator investigations," said Li Ran, a 26 year-old investor who works for a securities firm in Beijing.
"Apparently, only a highly manipulated market could have such a strange performance," Li said.
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"Sideways movement on high volumes shows agreement about the value. It's common in a market that is waiting for a news release. It is like the calm before a storm, " he said.
Volatile cocktail
Guppy said the Disney project and the often-erratic nature of China's stock markets were always going to be a volatile cocktail.
"The patterns have been unusual, but not dramatically out of the ordinary for China trading," he said.
Guppy believes some of the sudden movements in share prices, as highlighted by the share graphs, were classic examples of rumor speculation.
He points to the behavior of Zhonghlu's shares when it rose 10 percent a day for nine consecutive days from Nov 19 2008.
"The chart-1, chart-2 and charts-3 show a clear correlation of the Western idea of 'buy the rumor and sell the news'. There was a fairly standard price and volume (of shares traded) rise taking place. People becoming increasingly aware of the potential of the rumor," he said.
Guppy said the whole saga of the Disney speculation created perfect opportunities for arbitrage, where investors can take opportunities between price differentials between markets.
Time zone follies
News surrounding the Disney project often emerged in the United States, when all but the most financially active were fast asleep in their beds in China.
"You have news released in different time zones, which creates perfect opportunities for arbitrage. Those who got access to the information earlier could act upon it when the market opened in Shanghai. In the modern world, there is no way you can stop these arbitrage opportunities," Guppy said.
Many believe the media itself has played a huge part in adding to the speculation and destabilizing the market through the drawn-out affair.
To give just one example, Shanghai Securities News reported on Aug 8 that the Pudong local district authority had settled major issues surrounding the project with Disney.
This triggered a strong market reaction. The price of companies such as Jielong plunged sharply after consecutive hikes in the previous few days.
This seemingly perverse behavior was following a classic Chinese pattern of how "stock prices hit the ground when rockets are in the sky", not dissimilar from the Western concept of buying on the rumor and selling on the news.
"The supportive news reports were often released at a time when the market had reached its peak," Li Ran, the Beijing investor, said.
"A lot of small investors like myself sensed that possibly some institutional investors were using media organizations to spread rumors so as to misguide us," Li said.
Guppy said it is difficult to establish whether someone was deliberately trying to manipulate the market by planting false leads and making sure they appeared in some influential publication at key moments.
"The off-again, on-again nature of this project adds to rumor-driven price rises. If we say a rumor is deliberately planted, that is a type of market manipulation, but it is very difficult to prove. You see this very often," Guppy said.
All the Disney speculation has brought into question whether Chinese markets need tighter regulation.
Some of the unusual trading patterns seen recently might have led to investigations by the authorities on Wall Street or in London.
Li Jianfeng, an analyst with Shanghai Securities, wonders, however, whether more exacting regulations would have protected smaller investors from the volatility.
"Regulators will and should investigate obvious price manipulation. But it is often hard to stop it in the first place, because investigations often come after the manipulation which has already resulted in losses for investors," he said.
Missing the ride
Very few have shared in the Disney stock market bonanza. Just a few kilometers away from the Shanghai Stock Exchange in the Chuansha township in Pudong district, local residents have failed to benefit from any of this speculation.
It is far too early for any signs of construction. As the trees sway in the late autumn winds, the site has a desolate look with only a modest cluster of farmers' homes in sight
Min Rongchun, a villager who ploughs a small plot in Zhanghang, one of the villages that make up the area, said he has yet to be touched by any of the Disney glamour.
"We've heard about the coming of Disneyland for over a decade, but Mickey Mouse has yet to affect our daily lives," Min said.
Like other farmers, he is aware that he could be the recipient of a financial compensation package.
Already, most of the farmland around the proposed site has been fenced off using green mesh wire.
"It's been much talked about that we can get higher compensation from the government for Disneyland usage if the lands are fenced, and everyone in the village is making sure they have fences," a farmer surnamed Liu said.
James Macdonald, head of research at estate agents Savills in Shanghai, said the economic benefits for those living in the area might not prove to be that great.
"There will likely be some uplift to the residential market in the immediate area from services and facilities that are constructed in order to support Shanghai Disney. There may also be a larger uplift to property values for projects where residents are relocated for construction of these facilities," Macdonald said.
"This impact is still limited by the location, as it is far from the city center. Residential values will still be significantly lower than in inner parts of the city," he said.
There also has to be a question about whether the Disney park will prove to be the real commercial success that all this speculating has seemed to imply.
Parita Chitakasem, research manager at research organization Euromonitor International's Singapore office, said there is already tough competition in China from attractions such as Window of the World in Shenzen, JinJiang Amusement Park and Beijing World Park.
"Disney will be up against some very large players," he said.
The real winners in all of this could, indeed, be the speculators. The question is whether they will go away now that the project has been announced.
Many believe the values of companies directly linked to the project such as those with land banks will deter any more of this activity.
"They no longer have the value for investment. The development of the land will soon be taken over by the government once the project enters the first-phase construction," said Li from Shanghai Securities.
"In fact, we have already seen some of the shares of companies that have been part of the Disney speculation, but which do not have any real business in the project, start to show weak performance," he said.
Li said the only companies that are likely to do well from the project are the ones in it for the long term.
"Companies that could possibly lead the next round of growth are those in infrastructure, tourism, transportation and the retail sector which will likely gain real benefits from the project," he said.
It may be that China's many speculators will now have to look for their next target.
There will be few to match the roller coaster stock market ride provided by all the Disney Fantasia.
