As China’s stock market has seen record gains in recent weeks, police in Jiangxi province have posted online video footage of a driver parked in a highway emergency lane for hours. His excuse for not heeding multiple warnings from other drivers was that he was too preoccupied with stock trading.
Drivers weren’t the only ones feeling at risk. Millions of other Chinese people are similarly glued to their screens and brokerage accounts as the market soars and then plummets in days of volatile trading.
Retail investors rushed to take advantage of the dizzying market rally that began in late September, when the People’s Bank of China announced plans to revitalize the stock and real estate markets. The benchmark CSI300 index rose 24% in five trading days, then resumed trading 11% higher after a week-long break.
But within hours, the record rally was the biggest in more than four years after other Chinese government policymakers failed to meet investors’ expectations for an announcement of deeper fiscal stimulus. Fell into the decline of the sun.
This sudden spike in activity marks a remarkable resurgence of animal spirits in China’s retail trading community, after many small traders fled the underperforming stock market and sought assets such as gold and government bonds. are.
But the market volatility also highlights the risk of a return to volatile Chinese stocks, with some using the phrase “ge jusai”, which means “cutting onions”, which could lead to market tops. It’s a term used to refer to beginner investors who get excited but end up feeling depressed. A sickle was strangled.
“If people are trying to make money right away, inexperienced investors are bound to suffer losses,” said a 43-year-old man from Kunming who gave his name as Mo, who has been investing for 20 years.
Still, the rush to return to stocks is remarkable. Retail purchases have surged since the stimulus package was announced on September 24, with around RMB 3 trillion ($424 billion) purchased on October 8 alone, according to data provider Wind. . According to Goldman Sachs’ sentiment tracker, the number of new margin investors (requiring more than 500,000 yuan to invest) increased by 30,000 in six business days.
Brokers told the Financial Times they are working hard to attract huge numbers of new customers.
“Yesterday at 1:40 a.m., I received a call from a customer who wanted to open a brokerage account,” an account manager at a mid-sized Shanghai-based brokerage firm said on Thursday. “As soon as I put down my office phone, it rings again.”
China’s roughly 200 million retail investors have long held unfair control over the country’s stock market, with very limited opportunities for those with capital to invest abroad. In January, authorities further restricted the Qualified Domestic Institutional Investor Scheme, which allows some retail investors to buy overseas assets.
Retail investors investing through brokerages and stock accounts held 55% of the free float of mainland Chinese stocks, known as A-shares, at the end of the second quarter, according to calculations by West China Securities. This figure does not include those who own shares through mutual funds.
Nevertheless, many Chinese investors do not rely on investing much of their wealth in stocks, preferring real estate, bonds and money market funds to riskier stocks.
International industry experts said the investment environment could change as more retail investors commit to the stock market.
“Currently, (approximately) $12 trillion in household deposits are sitting in low-yield money market funds,” said Beanit Kothari, CEO of U.S.-based hedge fund Techne Capital. said.
“The momentum of ongoing capital market reforms and the reconfiguration of the real estate industry will facilitate household asset reallocation,” he added. “This total inflow into the Chinese stock market represents more than 350% of today’s A-share float market capitalization.”
Still, many in China remember the events of 2015, when the Shanghai index reached a historic high in June and then fell nearly 40% in a month. Both the bull market and the subsequent crash were heavily influenced by policy announcements.
Many Chinese consumers are waiting to see if the government will provide further economic stimulus © Bloomberg
A Hangzhou-based private equity fund manager took advantage of a “bull market signal” from a central bank conference in September, but has since reduced its position in equities by 100% after fiscal spending failed. He said he has reduced it from close to 40 percent. To make it a reality.
“We’ll add more once we see Treasury’s new commitments on further stimulus and improved high-frequency data in October,” he said.
His and others’ plans may depend on a special Treasury Department meeting scheduled for Saturday. The ministry said it would focus on “strengthening the countercyclical adjustment of fiscal policy”, which economists believe could signal further stimulus.
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Anhui bankers suggested the move would not lead to lasting benefits. “This will show the world how strong China’s stock market is and how prosperous China’s economy is, but at the end of the day it’s all about cutting the onion. And who gets cut? China small retail investors,” the banker said.
Penny Gao, 33, a stage manager from Beijing who owns an investment trust, is no longer considering further investments.
For her, the recent rise has given her what she’s been looking for for three years. This is your chance to sell out after the rally allows you to reduce your losses from 40% to a more manageable 20%.
“I don’t want to be locked up for this long again,” she said. “I want to cash out before I get greedy again.”
Additional reporting by Wang Xueqiao in Shanghai
