Beijing sparks a retail frenzy

After China’s stock markets posted a record rally in recent weeks, police in Jiangxi province posted video footage online of a driver parked for hours in an emergency lane on a highway. His excuse for ignoring multiple warnings from other drivers: He was too caught up in stock trading.

The driver was not the only one who flirted with danger. Millions of other Chinese were similarly glued to their screens and brokerage accounts in recent days as markets rose — then fell — in days of volatile trading.

Small investors rushed into a blistering market rally that began in late September when China’s central bank announced measures to boost stock and property markets. The benchmark CSI 300 rose 24% in five trading days, then reopened 11% higher after a weeklong break.

But within hours – after other policymakers in Beijing failed to meet investors’ expectations of an announcement of deeper fiscal stimulus – a record rally slid to its biggest one-day drop in more than four years.

The sudden burst of activity marks a notable return of animal spirits to China’s retail crowd after many small traders left the underperforming stock market and sought assets such as gold and government debt.

But the market’s wild swings also underscore the risks of a backlash in China’s volatile shares, with some using the phrase you playi.e. “cutting the leeks” — a reference to newcomer investors who rush to the top of the market only to be cut.

“If people try to make quick money right now, inexperienced investors are bound to suffer losses,” said a man who gave his name as Mou, a 43-year-old from Kunming who has been investing for 20 years.

However, the rush back into stock has been pronounced. Retail purchases rose after the stimulus was announced on September 24, by nearly 3 billion lei ($424 billion) on October 8 alone, according to Wind, a data provider. The number of new investors trading on margin — who need more than Rmb500,000 to invest — rose by 30,000 in six trading days, according to a Goldman Sachs sentiment tracker.

Brokers told the Financial Times they are working hard to sign up a large number of new clients.

“A client contacted me yesterday at 1:40 a.m. to open a securities account,” an account manager for a medium-sized brokerage firm in Shanghai said Thursday. “The office phone rings again as soon as I put it down.”

China’s roughly 200 million retail investors have long held disproportionate control over the country’s stock markets because those with funds to invest have very limited opportunities to do so abroad. In January, authorities further restricted the scheme for qualified domestic institutional investors, which allowed some retail investors to buy assets abroad.

Retail investors, who invest through brokerages or share accounts, held 55 percent of the free capital of mainland Chinese shares, known as A shares, at the end of the second quarter, according to calculations by Huaxi Securities. The figure excludes those who hold shares through mutual funds.

However, many Chinese investors have not based much of their wealth in stocks, preferring real estate, bonds and money market funds to riskier stocks.

International industry experts said that attracting more ordinary investors to engage in the stock market could transform the investment landscape.

“Today (there are) (about) $12 billion of household deposits locked up in low-yielding money market funds,” said Beeneet Kothari, chief executive of US-based hedge fund Tekne Capital.

“The ongoing reform of the capital markets and the reconfiguration of the real estate industry will lead to the reallocation of household assets,” he added. “This total amount of inflows into China’s equity markets would represent more than 350% of the total free float market capitalization of A shares today.”

However, many in China remember what happened in 2015, when the Shanghai index hit an all-time high in June before falling nearly 40% in a month. Both the bull run and the ensuing crash were heavily influenced by political announcements.

A Hangzhou-based private equity fund manager said he capitalized on the “signal of momentum” from the central bank’s September briefing, but later reduced his position in the stock from nearly 100 percent to about 40 percent when growth policies fiscal spending failed. to materialize.

“I would only add more after I see new promises from the Treasury about more incentives or improved high-frequency data in October,” he said.

His plans and others may hinge on a special finance ministry briefing on Saturday. The ministry said it would focus on “intensifying the countercyclical adjustment of fiscal policy,” which economists believe could point to more stimulus measures.

A banker in Anhui province suggested the measures would not lead to a lasting benefit. “This makes the whole world see how good the Chinese stock market is and how prosperous the Chinese economy appears, but in the end it’s all about cutting leeks. And who is cut? Small Chinese retail investors,” the banker said.

Penny Gao, a 33-year-old stage manager from Beijing with a mutual fund, gives up on the idea of ​​investing more.

For her, the recent rally gave her what she had been looking for for three years: a chance to sell off, after the rally allowed her to cut her losses from 40 percent to a more manageable 20 percent.

“I don’t want to be caught that long again,” she said. “I want to cash out before I get greedy again.”

Additional reporting by Wang Xueqiao in Shanghai