COLUMN - China stocks may see Olympics honeymoon

By Wei Gu

HONG KONG (Reuters) - Many investors who believed the Beijing Olympics would drive the Shanghai stock index to peaks to rival the Himalayas have lost their shirts.

Similarly, those who believe the index might dive as low as 2,008 after the 2008 Games, might miss a big rebound. The market might benefit from a short-term sentiment lift, particularly if China wins a lot of gold.

Investors -- disheartened by terrorist threats to the Games, summer power shortages, logistics nightmares, and factory closures in a bid for blue skies - are desperate for an Olympics honeymoon for stocks that could be just around the corner.

An upward jump in the market is possible partly because the Chinese index is among the worst-performing in the world this year, down some 45 percent.

The Olympics could send the index back above the 3,000 level, from current levels near 2,900. Whether the rally can be sustained, though, depends on Beijing's resolve in following through on much-needed reforms after the Games.

The market might benefit from a likely policy vacuum in the next month. Beijing probably won't introduce more tightening or any drastic reforms before the torch goes out, especially since President Hu Jintao recently stressed the need for economic stabilization to make sure the Games are a success.

"The Chinese culture has determined that the most publicized event in China's own history needs to start in great joy and end in enormous satisfaction," said Dong Tao, Asia ex-Japan economist for Credit Suisse. "Chinese leadership wants to make sure the economy and stock market prosper."

Investors in Chinese stocks certainly need all the help they can get. Just a year ago, almost every brokerage firm was churning out reports predicting the market could go through the roof before the Olympics. The only worry back then was about a post-Olympics lull. The subprime crisis, $140 oil, and the Sichuan earthquake were nowhere on the radar screen.