Fluc­tu­a­tions show in­vestors’ im­ma­tu­rity

Global Times - - Front Page - By Wang Cong

Chi­nese main­land stocks re­bounded on Mon­day fol­low­ing an ex­tremely volatile week.

But even as mar­kets ap­pear to be calm­ing down, sober­ing ques­tions as to what went wrong and who is to blame lingers among Chi­nese in­vestors, an­a­lysts and of­fi­cials.

While the rocky week, which saw the Shang­hai Com­pos­ite In­dex plunge nearly 10 per­cent and the smaller Shen­zhen Com­po­nent In­dex tum­ble around 8 per­cent, may have been trig­gered by a global rout that started in the US, do­mes­tic fac­tors such as the ris­ing bub­ble in eq­uity prices and a mas­sive base of in­di­vid­ual in­vestors who tend to en­gage in short-term spec­u­la­tive trad­ing played a ma­jor role, some an­a­lysts noted.

On Mon­day, the Shang­hai Com­pos­ite posted a 0.78 per­cent gain, while the Shen­zhen Com­po­nent edged up 2.91 per­cent. The blue-chip CSI 300 in­dex also gained 1.29 per­cent

on Mon­day.

“Though fur­ther volatil­ity might oc­cur, the stock mar­ket will soon sta­bi­lize,” Dong Dengxin, di­rec­tor of the Fi­nan­cial Se­cu­ri­ties In­sti­tute at the Wuhan Uni­ver­sity of Sci­ence and Tech­nol­ogy, told the Global Times on Mon­day.

As for last week’s sharp losses, Dong cited “in­ter­nal” fac­tors for the wide­spread sell-off and said the US stocks rout was just a “co­in­ci­dence.”

“Even with­out the US stocks rout, the A-Share mar­ket would have been headed for a cor­rec­tion,” Dong said.

He added that steady gains in the past six to seven months have pushed the A-Share mar­ket to a point where a cor­rec­tion is due, with prices of some blue-chip shares such as Kwe­i­chow Moutai go­ing “crazy,” and ma­jor earn­ings short­falls re­ported by sev­eral com­pa­nies also shat­tered in­vestors’ con­fi­dence.

A to­tal of 79 listed com­pa­nies re­ported earn­ings losses of more than 10 mil­lion yuan ($1.58 mil­lion) for 2017, while 10 of them re­ported losses of over 1 bil­lion yuan, in­clud­ing Leshi In­ter­net In­for­ma­tion and Tech­nol­ogy Cor­po­ra­tion, which re­ported a strik­ing loss of more than 11 bil­lion yuan, the Se­cu­ri­ties Times news­pa­per re­ported last week.

How­ever, do­mes­tic fun­da­men­tals re­mained strong, though some spec­u­la­tion does ex­ist, and it was the US stocks rout that led to the down­fall in the Chi­nese mar­kets, ar­gues Li Dax­iao, chief econ­o­mist at Yingda Se­cu­ri­ties.

“I think the US fac­tor played a larger role in the Chi­nese stock mar­ket rout,” he told the Global Times on Mon­day, point­ing to rel­a­tively lower price-earn­ings ra­tios in the Chi­nese in­dexes.

The price-earn­ings ra­tio of the CSI300 is at 14 times, sub­stan­tially lower than the NAS­DAQ’s 60 times and the Dow Jones’ 21.7 times, ac­cord­ing to Li. A high price-earn­ings ra­tio in­di­cates a bub­ble in val­u­a­tion.

‘Im­ma­ture’ in­vestors

Ei­ther way, a cru­cial is­sue be­hind both in­ter­nal and ex­ter­nal fac­tors is the huge base of in­di­vid­ual in­vestors, who are im­ma­ture and highly spec­u­la­tive, the two an­a­lysts said.

“Chi­nese in­vestors are im­ma­ture. They fo­cus on short-term, spec­u­la­tive trad­ing,” Dong said, adding this could be “a big is­sue be­cause the group is mas­sive.” He noted that in­di­vid­ual in­vestors ac­count for up to 90 per­cent of to­tal trans­ac­tions dur­ing cer­tain pe­ri­ods such as the mar­ket crash in 2015.

Li also pointed out that in­vestors’ be­hav­ior fol­low­ing heavy losses also re­flects their grave mis­un­der­stand­ing of the mar­ket and risks.

Af­ter the re­cent mar­ket tur­moil, which came just a week be­fore the Chi­nese lu­nar new year, some in­vestors have re­port­edly slammed the US for start­ing the stocks rout, and Chi­nese of­fi­cials for their in­ac­tion, and have blamed the US and the Chi­nese gov­ern­ment for ru­in­ing their new year.

“This is just so ir­ra­tional and im­ma­ture,” Li said. “They should un­der­stand that this is all part of the risk they take when in­vest­ing in the stock mar­ket.”

Dong said he is “glad” that the [China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion] did not in­ter­vene as they were called on to do “be­cause that’s not their job. Their job is to pro­vide a fair mar­ket, and not to drive the mar­ket up or down.”

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