The glory days for the Shanghai composite Index were in 2006-2007 when the index surged from a mere 1,000 points to a record 6,124 in less than two years. Can such a feat occur again for the year ahead? That seems unlikely since many Chinese investors feel burned by the ongoing downward trend of Chinese stocks, and its index hovers slightly above the 2,000 as of the end of this year.

A few years ago, many Chinese had discovered newfound wealth and sought to diversify their investments. Buying stocks and mutual funds was a new concept for many, and they wanted to cash in. However, problems emerged as some publicly listed companies on the SSE reported somewhat dubious figures on their balance sheets, which were officially submitted to financial watchdogs.

At the time, the SSE was less regulated and so companies could launch IPOs in Shanghai just for showing off vanity rather than to increase capitalization to expand business operations. Fortunately, Chinese stock market regulators are getting more aggressive about eliminating fraudulent IPO schemes and insider trading scams in Shanghai to encourage greater transparency and fairness on the trading floor.

Nevertheless, tougher trading restrictions mean that wild fluctuations and skyrocketing jumps in the market are not likely to occur. But that’s ok, since such market trends can make people rich overnight and then poor the next day. More stability is necessary for the Shanghai Stock Exchange to succeed in the long-term.

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