Stocks News
- China's retail investors make impact on markets
Date: 5-Mar-2007 Sources: (Xinhua Online)
Gan Lanhui, a 45-year-old laid-off worker, transferred 50,000 yuan (6,460 U.S. dollars) of personal savings into a stock account last Wednesday - one day after China's key stock gauge logged the steepest single-day loss in a decade.
'I had been waiting for the drop for some time and it finally arrived,' said Gan, who invested the money into yuan-backed shares within an hour.
'Everyone is talking about overheating, but I believe there's still opportunities to make money if you make the right decisions.'
Swooped in
Gan is among tens of millions of Chinese investors who witnessed four years of stock slumps starting in 2001 amid corporate scandals and insider trading.
But as the market started to pick up early last year, once-hurt retail investors swooped in, betting on improved fundamentals and more quality listings.
Their decisions seemed to have paid off. The Shanghai Composite Index charted a blistering 130 percent rally in 2006. The gains extended in January and the market topped all-time records.
However, volatility increased last month with the index slumping 8.8 percent last Tuesday after reaching a 16-year high last Monday.
Analysts noted as turnover repeatedly set new highs, the market was divided on whether the drop might develop into a long-term correction.
But high trading volume this year - nearly triple the daily average in 2006 - reflects that stocks have replaced long-favored real estate as a preferred investment tool for mainland citizens.
The mounting frenzy may further spur regulatory jitters over potential bubbles, which were believed to have ignited last week's declines, possibly stoking investor unrest if a sudden deep plunge occurs.
'One of the biggest challenges regulators face now is how to persuade investors that the stock market is not a bank that can guarantee returns,' said Li Zhi, a Hualin Securities Co analyst. 'Mainland investors are simply not well educated and tend to be irrational if their holdings lose value.'
The China Securities Regulatory Commission, the stock regulator, started late last year to damp potential overheating by cracking down on illegal money flows into the market.
The watchdog also told people to stay calm and not to expect unreasonable returns when choosing equity-based mutual funds, according to a notice carried by the Xinhua news agency last Thursday.
High percentage
Despite all these efforts, industry watchers said it might take longer to educate investors of trading risks.
Although authorities are striving to bolster the participation of institutions in the capital sector, the percentage of retail investors on the mainland is still much higher than that in mature markets, according to a China Securities Regulatory Commission report.
The Washington Post's Website reported yesterday that state-owned enterprises and large Chinese investment firms own 40 to 50 percent of shares with the remainder owned by individuals. Institutions control 80 percent or more of shares in the United States and other mature markets, the report said.
It's common in big cities such as Shanghai, Beijing and Guangzhou to see retired or laid-off workers in large numbers outside brokerages. The traders often cash out even if they only make a little money.
Investors are also crazy about equity funds, whose combined values have more than doubled since the start of 2006.
Regulators halted vetting new products in November to cool the market. Still, demand rose for the funds after approvals resumed last month.
CCB Principal Asset Management Co late last month marketed the country's first equity fund in four months and sold 10 billion yuan (1.29 billion dollars) in units, an amount capped by the regulator to curb risks, within two hours.
'I wasn't aware of what a mutual fund is until last year,' said Chen Xiaodong, a 62-year-old retired engineer. 'I took it as something similar to bank savings but with higher returns. No one has warned me of risks.'
Little knowledge
Chen said that many of his friends, mostly retired, are asking banks if there will be fresh sales of mutual funds.
However, many seem to have little knowledge about the products, with some even asking banks to explain why their funds lose value when the stock market drops.
'Although they see losses, they pump in more money,' said Chen, 'There's a belief that the central government won't let the market sink.'
Regulators didn't directly respond to last Tuesday's sharp loss but issued internal notices to stock bourses and brokerage houses, ordering them to boost risk controls and investor education, sources said.
Meanwhile, Gan said she would take a long-term view towards stock investments after receiving leaflets and phone calls from her broker to warn her of the risks.
'I won't be surprised to see more drops this year,' said Gan. 'So it's better for me to focus on companies with growth potential rather than just going bargain hunting.'
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