Hunting profits

Small investors joining stock market craze

Small investors have poured into China’s stock markets and moved away from low interest savings accounts at traditional banks.

Their cash has mingled with the billions of dollars pumped in by major domestic players and foreign private equity companies. The result has been a mixture of euphoria and anxiety.

Earlier this month, the benchmark Shanghai Composite Index closed at a sevenyear high, breaking through the 5,000 barrier for the first time since 2008.

But since then, the markets have gone through turbulent times. Last week, the markets tumbled with the Shanghai Composite Index falling to 4,192.87 and the Shenzhen Component Index dropping to 14,398.79, prompting the central bank on Saturday to cut its benchmark lending rate to a record low and lower some lenders’ reserve requirement ratios.

The one-year lending rate was reduced by 25 basis points to 4.85 percent, while reserve ratios for some lenders was cut by 50 basis points. The easing follows the biggest two-week plunge in China’s stock market since December 1996.

“Investors are cautious now, yet not pessimistic,” Eric Wu, a private equity analyst based in Shanghai, said. “But as investors become more cautious and the authorities keep stressing deleveraging, it is unlikely the market will go up wildly. On the contrary, there will be more volatility ahead.”

For small investors, the markets were seen as the ideal place to grow their financial nest eggs.

According to a monthly survey of retail investors by China Confidential, the research arm of the Financial Times newspaper, almost half of the 1,000 polled believed it was a “good time” to invest in yuan-denominated A shares.

Only 18.5 percent of those who took part in the survey last month in more than 300 Chinese cities felt it was a “bad time” to invest in stocks.

Even though the market environment has changed, small investor Tian Yuanqiong, a restaurant owner in Chongqing municipality, is still optimistic.

“It’s better than putting all your money in the bank,” she said. “I think the bull market logic has not changed and I am optimistic about the future. But it will become a slower rise from now on.”

Tian reduced her stock holdings as the markets became more “volatile”. Finding bargains has now become her specialty. “There are still opportunities in those cheap

financial stocks on the main board, such as the undervalued banks,” she said.

Lin Hui, a Hong Kong-based lawyer, is also relatively upbeat.

She started investing in stocks in March when she moved part of her portfolio from wealth management products after the CSI 300, an index consisting of 300 Ashare stocks listed on the Shanghai and Shenzhen exchanges, climbed above the 4,000 mark. That was a rise of 2,000 points compared to the same period last year.

But Lin remains

cautious about diverting more money into the markets and takes a broader view when it comes to investments.

At one point, she had 40 percent of her savings in stocks, 30 percent in wealth management products and another 30 percent in instant access bank accounts.

“Individual small investors like me are just cannon fodder,” Lin said, declining to give the amount of her investments.

“We get hurt easily by stock market speculation. So we should be very careful about selecting stocks and make sure we have a good understanding of relevant companies.”

Sound advice after the rollercoaster ride most investors have gone through in the past two weeks.

“This broad directional trend is unlikely to be smooth, with volatility likely, especially given the scale of recent market gains and the likelihood of corrections and sell-offs as investors take profit,” Matthew Plowright, principal of China Confidential, said.

Naturally, small savers are looking at other opportunities when it comes to investing their money. During the past few years, their options have increased as asset managers and insurance companies have rolled out new products.

But the biggest change has been the rise of Internet wealth management funds.

Yu’ebao, part of the Chinese e-commerce giant Alibaba Group Holding Ltd, is one of the major players. So is Licaitong, which is owned by Tencent Holdings Ltd, the investment group with subsidiaries in media, entertainment, Internet and Web advertising services.

The success of these online money market funds has even put pressure on traditional bank deposits. Usually, the interest rate is far higher than what is being offered by banks on traditional accounts.

“The popularity of Internet wealth management products has remained intact, despite the recent reallocation to shares,” Plowright said.

“Other Internet products, such as peer-to-peer lending (which involves individuals or small companies borrowing money from online investors), have also seen strong growth, although high-profile defaults have raised concerns about the potentially risky nature of these investments,” he added.

savings LI Xiang contributed to this story

LI GUOCHAO / FOR CHINA DAILY A bank clerk at a Bank of China branch in Nanchong, Sichuan province. Many small Chinese investors are turning their backs on low interest savings accounts and moving their money into online funds.