China's main stock index climbed 0.80% to just below its record high on Monday as investors shrugged off an announcement by the securities regulator that it would crack down on insider
trading and share manipulation.
The announcement during the weekend by the China Securities Regulatory Commission was strongly worded, warning that "market irregularities have increased" during the bull run and many investors did not understand risks.
The CSRC said it would tighten supervision of the market and ordered brokerages and fund managers to pay for efforts to educate investors on risks.
Some analysts believe this could be followed by more official action to try to cool the market and prevent a dangerous bubble from forming -- for example, steps to slow flows of fresh funds into the market.
But with the index up 52% this year, bullish individual investors believe they still have time to make big profits before any market pull-back.
"Market sentiment is very strong so the CSRC announcement had little impact," said Zhang Qi, analyst at Haitong Securities. "Funds are pouring into the market continuously."
The Shanghai Composite Index fell 2% in the opening minutes in a knee-jerk reaction to the CSRC's statement, but quickly bounced to stand at 4,053.851 points at midday, near last Thursday's record intra-day high of 4,072.138.
Turnover in Shanghai A shares was very heavy at 94.2 billion yuan ($12.3 billion), though down from the ultra-heavy morning levels above 100 billion yuan seen on three days last week. Gainers outnumbered losers by 506 to 361.
A dramatic sign of how little investors worried about the CSRC's warning was a jump in shares of Hangxiao Steel Structure.
On Monday the company said it and some of its top executives had been fined for failing to properly disclose information about big contracts that caused its shares to more than quadruple.
But the stock soared its 10% daily limit to 14.88 yuan -- apparently on relief that authorities had not acted more harshly.
The government announced in the morning that April consumer price inflation was 3.0%, at the low end of expectations and down from 3.3% in March.
Analysts said this did not necessarily mean an end to pressure for inflation to rise, and did not rule out the interest rate hike that many expect in coming weeks.
But it was enough to encourage a rally in real estate and banking shares, which could be hurt most by higher interest rates. The yuan's rise to a fresh post-revaluation high also helped those sectors. Real estate giant Wanke rose 7.41% to 24.05 yuan.
Investors ignored the latest sign that foreign investors were worried the market had risen too fast. The official Shanghai Securities News quoted data from Emerging Portfolio Fund Research as showing international investors withdrew a net $574 million from China-focused stock funds in the second week of May -- the first net outflow since mid-January.
The government announced at the weekend that it would let qualified domestic institutional investors put money into overseas equities.
Although this is expected initially to benefit Hong Kong, where the prices of dual-listed H shares are far below A shares, fund outflows from China are not likely to be nearly large enough to weaken the A share market, analysts said.
Steel shares were also very strong on Monday, with Baosteel ascending 4.06% to 13.32 yuan, partly on expectations that it would expand through acquisitions.
Last week's news that Baosteel would build a $2.5 billion steel mill with Handan Iron and Steel group was taken as a sign that it could eventually acquire major parts of the group, even though Handan has so far defended its independence.
Analysts expect a strong listing on Tuesday for Bank of Communications, which they believe will rise at least 50% from its domestic IPO price.