Stock gains could prove short-lived

Trading volume on China's stock market skyrocketed to 710.5 billion yuan ($115.58 billion) Friday, the highest daily turnover figure yet recorded till the end of November this year in the global capital market.

The central bank's interest rate cuts offer one plausible explanation for the surge. Indeed, the cuts have been broadly seen as positive for the stock market, luring a large number of retail investors.

But the recent surge won't last for long if it's merely a product of short-term policy speculation. This won't provide a solid foundation to support further gains. The purpose of the central bank's cuts is to revitalize the real economy by relieving financing pressures on businesses, not to jolt the stock market with cheap credit. Economic activity in China has slowed over recent months and weakening fundamentals can hardly lead to sustained equity gains.

Retail investors should exercise caution. The strong possibility of a market slump means that investors could soon see their share gains wiped away. Small individual investors who have the most to lose should be particularly prudent with their investment choices.