Equity markets already overloaded

Earlier last week, word surfaced that there could be more than 10,000 companies trading on mainland stock exchanges within 10 years, up from the 2,494 firms currently listed at boards in Shanghai and Shenzhen.

The proliferation in listings some are predicting is based on the huge gap between China's GDP and the value of its stock market - China's GDP will exceed 50 trillion yuan (8.02 trillion) this year, however the total value of the domestic equity market is about 20 trillion yuan.

Yet, in many developed countries, the value of the stock market is larger than GDP. Thus, it is only a matter of time, some say, before China's stock market explodes to keep pace with its rapid economic growth.

Yet, in China's dysfunctional market, such a conclusion does not stand up to scrutiny. Equities exceed GDP overseas because stocks reflect the future value of companies. In China though, few investors are confident that listed companies will perform well over the long term.

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