Chi­nese small in­vestors fly­ing blind in lat­est mar­ket boom

The China Post - - WORLD BUSINESS - BY JOE MCDON­ALD

Li Haitao, a 24-year-old em­ployee at a steel trad­ing com­pany, did no re­search last June be­fore he joined a stam­pede of novice in­vestors into China’s surg­ing stock mar­ket. He paid for his risk-tak­ing. “I went in blind,” said Li, who works in the south­ern prov­ince of Hu­nan. “I al­ready have suf­fered some losses, but luck­ily not much.”

Many new in­vestors pil­ing into China’s stock mar­ket, which has more than dou­bled in less than a year, are like Li: Rook­ies with lit­tle in­for­ma­tion whose en­thu­si­asm for risky spec­u­la­tive trad­ing is fu­el­ing ris­ing con­cern they might be hurt when the boom cools.

“It’s very com­mon that in­vestors do not even know what the com­pa­nies in which they in­vest do. They do not care,” said Zhang Chi, a se­cu­ri­ties an­a­lyst in Shang­hai and for­mer fi­nan­cial colum­nist for sev­eral news­pa­pers. “I am wor­ried about them.”

In con­trast to the United States, Europe or Ja­pan, where many peo­ple in­vest through mu­tual funds, most Chi­nese in­vestors buy stocks di­rectly, some­times in com­pa­nies whose names they can­not re­mem­ber.

‘If you are to make losses, it is

fated’

Fi­nan­cial lit­er­acy is limited in a so­ci­ety where the main­land’s first com­mu­nist- era stock ex­change opened in Shang­hai only in 1990. Bro­ker­ages of­fer classes in trad­ing but a cul­ture of com­men­ta­tors who preach the gospel of low-risk, longterm in­vest­ing has yet to de­velop. Many small in­vestors rely on ru­mors or tips from friends in a mar­ket rife with com­plaints of in­sider trad­ing and fraud. Re­ports say the China House­hold Fi­nance Sur­vey, which is con­ducted by South­west­ern Uni­ver­sity of Fi­nance and Eco­nomics, found nearly 6 per­cent of new in­vestors were il­lit­er­ate, a quar­ter fin­ished only el­e­men­tary school and more than third left the ed­u­ca­tion sys­tem at ju­nior high school level.

“I bought shares al­most with­out ba­sis, blindly,” said a 54-year-old woman who would give only her sur­name, Huang, and was sit­ting at a desk in a room set aside by a Bei­jing bro­ker­age for fre­quent traders. She said she has been in­vest­ing since 2000 and is up 20 to 30 per­cent in the lat­est boom.

“It’s un­nec­es­sary to learn too much about stocks,” said Huang.

Why? Huang echoes a com­mon sen­ti­ment in a heav­ily reg­u­lated econ­omy in which stock prices are driven more by pol­icy changes than by eco­nomic fun­da­men­tals: “The stock mar­ket in China is ob­vi­ously ma­nip­u­lated by gov­ern­ment, so if you are to make losses, it is fated and has noth­ing to with whether you know more or not.”

The lat­est boom be­gan af­ter the state press said last sum­mer stocks were cheap. In­vestors took that to mean Bei­jing wanted prices to rise — and might prop up mar­kets if needed.

The bench­mark Shang­hai Com­pos­ite In­dex has soared 150 per­cent over the past year, though it has suf­fered stom­ach-churn­ing drops along the way, most re­cently a 6.5-per­cent plunge May 28.

The rul­ing Com­mu­nist Party wants to de­velop China’s stock mar­kets as a tool to help make the state- dom­i­nated econ­omy more ef­fi­cient but its lead­ers ap­pear to be get­ting un­easy the lat­est boom might run out of con­trol.

Waves of In­ter­est

State me­dia have grad­u­ally be­gun to urge cau­tion. But that comes af­ter months of cheer­lead­ing for higher prices and en­cour­ag­ing the public to buy.

The party news­pa­per Peo­ple’s Daily in a May 4 com­men­tary de­clared the lat­est boom a “prof­itable golden era.” TV sta­tions in Shang­hai and other cities broad­cast as many as three pro­grams a day with com­men­ta­tors talk­ing about the lat­est mar­ket moves.

“I be­lieve all I need to do is watch news and com­men­tary on TV, dis­cuss it with my friends, look at the his­tory of China’s stock mar­ket and try to get a bet­ter idea of what the gen­eral land­scape of China’s econ­omy is,” said Huang Jin­gru, who at 80 is a 12-year vet­eran of the mar­kets.

Each morn­ing, armed with the day’s fi­nan­cial news­pa­pers and a ma­son jar of tea, she sits in a Bei­jing bro­ker­age and hunts the lat­est stock tip.

“To­day’s pa­per high­lighted heavy and mil­i­tary in­dus­tries, so I’ll pay more at­ten­tion to stocks in th­ese in­dus­tries,” said Huang.

Many of the new in­vestors were born in the 1990s. That might make them too young to re­mem­ber China’s last mar­ket boom in 2007. It was fol­lowed by a price col­lapse that saw the bench­mark in­dex nose dive 70 per­cent over the fol­low­ing year.

In 2010, the state-owned China Se­cu­ri­ties In­vestor Pro­tec­tion Funds, which in­sures against pos­si­ble losses due to fraud or a bro­ker go­ing bank­rupt, pro­duced an ed­u­ca­tional 40-episode TV se­ries, “Un­cle Niu’s Story in the Stock Mar­ket.” The story fol­lows Un­cle Niu, Chi­nese for “Bull,” a play on the bull mar­ket, as he makes and loses money, high­light­ing prin­ci­ples of sen­si­ble in­vest­ing.

New in­vestors are of­ten en­cour­aged by sto­ries of stock mar­ket-driven wealth gains for China’s elite.

Boosted by surg­ing as­set prices, China cre­ated a new bil­lion­aire al­most ev­ery week in the first quar­ter of this year, ac­cord­ing to a sur­vey by Swiss bank UBS.

Huang said she has dou­bled her money since late 2014 but ac­knowl­edged that af­ter the 2007 bub­ble burst, she lost 70 per­cent of her in­vest­ment.

“I didn’t have much ex­pe­ri­ence and knowl­edge about in­vest­ment,” she said.

Reg­u­la­tors have taken steps to try to in­su­late the state-owned fi­nan­cial in­dus­try from a pos­si­ble down­turn. In April, bro­ker­ages were told to rein in lend­ing to in­vestors to buy stocks in an ap­par­ent move to limit losses if spec­u­la­tors go bust.

The Peo­ple’s Daily com­men­tary May 4 noted that few in­vestors made money in past booms — an ac­knowl­edge­ment that the prof­its go to state-owned bro­ker­ages and other big traders. It called on the public to “in­vest ra­tio­nally.”

But those warn­ings are so mild that new in­vestors are still pil­ing into the mar­kets.

In­vestors opened a record 4.428 mil­lion new trad­ing ac­counts in the week ended May 29, ac­cord­ing to the China Se­cu­ri­ties De­pos­i­tory and Clear­ing Co. That is sev­eral times the peak for new ac­counts dur­ing the 2007 boom.

“I’m ready to in­vest in the stock mar­ket, mostly in­spired by my friends,” said a 60-year-old woman who was vis­it­ing a bro­ker­age in Bei­jing and would give only her sur­name, Zhang.

“I have no plans or the en­ergy to learn all the ABCs of in­vest­ment,” said Zhang as she watched share prices change on a wall­size mon­i­tor. “So, ba­si­cally, I’ll just look around and see whether this blind cat can catch a mouse.”

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