Subdued greed is better

What are people enthusiastic about in China? A glance at smartphone screens of subway commuters could be a good starting point to find out.

You’ll likely find people playing King of Glory, the megahit mobile game developed by internet firm Tencent; or, they might be watching popular TV series or browsing e-commerce sites.

If you rewind your mind’s tape to, say, mid-2015, screens back then featured red and green candlestick charts. It was the summer of 2015, when China’s stock market kept scaling new heights. And then, the market peaked out and plunged dramatically. They called it the Summer Rout of 2015.

The change in smartphone screen content appears to reflect diminishing public enthusiasm for stock trading in China. And that is not necessarily a bad sign. Let me explain.

With the fear and shock of the rout still fresh in mind, many mom-and-pop investors appear to have lost interest in the A shares, China’s key stocks.

But the lack of enthusiasm could also be a sign that speculative trading, which had bedevilled the Chinese stock market in the run-up to the rout, has subsided, with fewer retail investors chasing market whims and fads instead of trading sensibly.

When the market cools down, prices are more accurate and value stocks with solid fundamentals tend to find more favor from rational investors.

It has made stock analysts and professional traders more comfortable with the market outlook for next year as many of them believe that if there had not been any rapid surge this year, or “irrational exuberance”, to borrow an Alan Greenspan phrase, then a crash in 2018 could well be unlikely.

The benchmark Shanghai Composite Index has recov-

ered gradually from the low level in 2016 and is now traded in a tighter band around 3,300 points.

The steady rise has generally been led by the gains in blue-chip stocks rather than overvalued small-caps. Most analysts believe market valuations are still reasonable and safe to trade.

The less speculative environment has also to do with the regulator’s tougher crackdown on manipulation and illegal leveraged trading to curb systemic financial risks. There has been more emphasis on greater transparency of listed companies with proper information disclosure and better corporate governance.

Muted enthusiasm does not mean retail investors have completely abandoned the A-share market. There are more smaller investors in China today who are tired of constantly checking stock prices and investing by themselves. They appear to have decided to entrust or outsource the task of wealth creation to trustworthy, professional asset managers.

I have seen such shift in investment approach among my relatives and friends. Many of them have become more serious and cautious about investing. They now prefer buying a mutual fund product rather than invest by themselves.

That is another positive sign: the Chinese stock market has become more mature with greater demand for professional investment and wealth management services. This could mean institutional investors will likely become dominant, which would translate into more maturity and less volatility in the market.

However, a market is a market. Stock prices will move as per the collective behavior and decisions of all investors. Some analysts warn speculators and whim chasers could return to the ring eventually, if/when they sense a bull run is forming.

That’s when rational investors should sit up and take notice that the current sober party might turn unruly.