There's A Problem With The Recent Rally In Chinese Stocks

The recent rally in China's Shanghai Composite has some people convinced that the market has bottomed.

However, Bloomberg BRIEF economist Michael McDonough has identified a potential red flag. From a tweet he just sent out:

A lack of new investors in China may indicate that the ongoing rally is hollow. The number of funded brokerage accounts slipped to 55.1 million in the week ended Dec. 28, the lowest level since November 2010. That was the fifth consecutive week of declines for funded accounts. The drop in funded accounts may indicate that domestic investors don't expect the current rally to last. The number of funded accounts peaked the week ended June 24, 2011, at 57.3 million, more than 2 million accounts above the current level.

Here's the chart:

Here's a six-month review of China's Shanghai Composite via Bloomberg.