Plunging market a hard lesson for stock investors
Print Edition
THREE weeks of falls on Shanghai’s stock market have cost veteran investor Gu Yongbiao an estimated 5 million yuan (US$805,000), over two-thirds of the value of his portfolio.
“The companies and institutions suck our money away. We individual investors pay,” he said 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.
China’s tens of millions of retail investors are learning a hard lesson in market economics as once high-flying stock prices plunge.
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 the slide.
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 said. “All my assets are in the market and I watched it fall by the 10 percent daily limit every 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.
Gu said he was aware of potential risks and the poor quality of many listed companies but could not resist the profits.
“I was trapped,” he said.
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 long term instead of 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 Ligang Liu, chief economist for China at the ANZ Banking Group.
At the same time, official interventions risk creating expectations that authorities will step in every time 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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