After China’s stock market surged to records in recent weeks, police in Jiangxi province posted video online of a driver parked for hours in an emergency lane on a highway. His excuse was that he did not heed the many warnings from other drivers: he was too busy buying and selling stocks.
The driver is not the only one in danger. Millions of other Chinese people have also been glued to their screens and brokerage accounts in recent days as markets soared and then plummeted in volatile trading days.
Small investors flocked to a dizzying market rally that began in late September, when China’s central bank announced measures to revive stock and real estate markets. The benchmark CSI 300 index rose 24% over five trading days, then reopened with an 11% gain after a week-long holiday.
But within hours — after other Beijing policymakers failed to meet investor expectations for deeper fiscal stimulus announcements — the record rally crashed into a one-day decline. Biggest in over 4 years.
The sudden burst of activity marks a remarkable return of animal spirits to China’s retail trading crowd, after many small traders fled an underperforming stock market and Look for assets like gold and government debt.
But the market’s wild swings also highlight the risks of a return to China’s volatile stock market, some use the phrase. Cat Cuu Taiwhich means “cutting leeks” – referring to new investors rushing to the top of the market only to be beaten down.
A man named Mou, a 43-year-old from Kunming who has been investing for 20 years, said: “If everyone is trying to make quick money now, inexperienced investors will definitely suffered a loss”.
However, the wave of return to the stock market has been clearly shown. According to Wind, a data provider, retail buying spiked after the stimulus package was announced on September 24, with nearly Rmb3 trillion ($424 billion) in buying on October 8 alone. According to Goldman Sachs’ sentiment tracker, the number of new margin trading investors – those who need more than Rmb500,000 to invest – increased by 30,000 in six trading days.
Brokers told the Financial Times they are working hard to attract large numbers of new customers.
“A client contacted me at 1:40 a.m. yesterday to open a securities account,” the account manager of a mid-sized brokerage firm based in Shanghai said on Thursday. “Our office phone rang again as soon as I put it down.”
China’s roughly 200 million retail investors have long wielded disproportionate control over the country’s stock market, as those with capital to invest have few opportunities to do so abroad. . Administration in January further Restrictions on the Qualified Domestic Institutional Investor program allows certain retail investors to buy assets abroad.
According to calculations by Huaxi Securities, retail investors, investing through brokerages or equity accounts, held 55% of mainland China’s free stocks, known as A shares, at the end of the quarter. two. This number does not include those who hold shares through mutual funds.
However, many Chinese investors do not rely on investing the majority of their assets in stocks, preferring real estate, bonds and money market funds to riskier stocks.
International industry experts say attracting more ordinary investors to the stock market could change the investment landscape.
“Today [there] exist [roughly] $12 trillion worth of household deposits are stuck in low-yielding money market funds, said Beeneet Kothari, chief executive officer of US-based hedge fund Tekne Capital.
“The ongoing momentum of capital market reform and restructuring of the real estate industry will drive the reallocation of household assets,” he added. “Total capital inflows into China’s stock market will account for more than 350% of today’s total A-share market capitalization.”
However, many people in China still recall what happened in 2015 when the Shanghai index reached a historic peak in June before plunging nearly 40% in a month. Both the rally and the subsequent crash were heavily influenced by policy announcements.
A Hangzhou-based private equity fund manager said he took advantage of the “bullish signal” from the central bank’s September briefing, but later cut his position for stocks from nearly 100% to about 40% as policies to boost fiscal spending failed. to materialize.
“I will only add more after seeing new promises from the Treasury Department about increased stimulus or improved high-frequency data in October,” he said.
His plans and those of others may depend on a special finance ministry briefing on Saturday. The ministry said it would focus on “strengthening pro-cyclical fiscal policy adjustments,” which economists believe could point to more stimulus.
A banker in Anhui province said that these measures will not bring long-term benefits. “This makes the whole world see how good the Chinese stock market is and how prosperous the Chinese economy is, but in the end it’s all about cutting leeks. And who will get cut? Small Chinese retail investors,” the banker said.
Penny Gao, a 33-year-old stage manager from Beijing of a mutual fund, is giving up on the idea of investing more.
For her, the recent price increase gave her what she had been looking for for three years: the opportunity to sell out, after the price increase allowed her to cut her losses from 40% to a more manageable 20%. .
“I don’t want to be stuck that long anymore,” she said. “I want to withdraw my money before I get greedy again.”
Additional reporting by Wang Xueqiao in Shanghai
