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Chinese investors learn markets can go down as well as up

Source: AFP | July 7, 2015, Tuesday | Online Edition

THREE weeks of falls on Shanghai's stock market have cost veteran investor Gu Yongbiao five million yuan -- more than $800,000 -- he estimates, over two-thirds of the value of his portfolio.

"The companies and institutions suck our money away. We individual investors pay," he said furiously in a Shanghai brokerage's VIP customer room.

Around him dozens of investors, most of them over 60, gazed in silence at computer screens showing prices in green, which means negative in China.

The country's tens of millions of retail investors are learning a hard lesson in market economics as once high-flying stock prices plunge, sparking sadness and anger.

In Shanghai, China's financial capital and home to one of the mainland's two stock exchanges, the euphoria of the last year has vanished as investors grapple with uncertainty over where the bottom might be.

Urged higher by the government, the Shanghai bourse rose more than 150 percent to its peak last month, then plunged nearly 30 percent in three weeks despite government moves to arrest a slide through a package of measures.

Of China's more than 90 million stock investors, over 99 percent are individuals, according to the China Securities Depository and Clearing Co.

Gu started playing the market years ago after losing his job at a state-owned firm.

"In Shanghai, almost every family has one member who has invested in stocks, so it affects us a lot," the 60-year-old told AFP.

"All my assets are in the market and I watched it fall by the 10 percent daily limit every day," he said, wearing a casual pink and white striped polo shirt for the trading day.

Chinese regulators limit the overall market and individual stocks to rising or falling 10 percent on a daily basis, but many investors trade on margin using borrowed funds -- which magnifies both profits and losses.


- 'Trapped' by the market -

Gu says he was aware of potential risks, and the poor quality of many listed companies, but the veteran investor could not resist the profits.

"I was trapped," he said.

Analysts believe that the government response to the fall, which includes halting initial public offerings (IPOs) and moving to pour funds into the market, is driven in part by worries over potential social unrest among angry investors.

Investor Xiang Bailing, 74, is among the many calling for China Securities Regulatory Commission (CSRC) chairman Xiao Gang to step down over the debacle.

"There were too many new shares and they approved IPOs at a speed that was too fast. They should dismiss and replace the head that approved the IPOs," he said.

But analysts said retail investors are part of the problem and the government should seek to build a class of institutional players, who trade for the longer term instead of merely seeking short-term gains.

"China will need to nurture an institutional investment culture by encouraging both domestic and foreign institutional investors to play a bigger role in the market," said Li-Gang Liu, chief economist for Greater China of ANZ Banking Group.

At the same time the official interventions risk creating expectations that authorities will step in every time whenever turmoil engulfs the market, a "moral hazard" for the government.

One investor who gave his surname as Wang said: "I believe in our country and the market will eventually start to rise."

 

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