China listings no lure to investors after closure of 3.6m trading accounts
Individual investors close 3.6m stock accounts since June 2011 as the regulator's crackdown on overvalued IPOs fails to boost confidence
Shanghai accountant Lina Yao says the 43 per cent opening-day gain for the mainland's first initial public offering in more than a year is not enough to bring her back to the US$3.2 trillion equity market.
"If they jump a lot, that means bigger risks," Yao, who sold all her equity holdings in November, said on Friday as Neway Valve (Suzhou) jumped in its Shanghai Stock Exchange debut. "And if they fall, that means shares are overpriced."
Yao's reticence towards mainland stocks is being repeated across the country, a sign that the campaign by regulators to crack down on overvalued listings and improve corporate disclosures is failing to boost confidence among individual investors.
The number of mainland stock accounts containing funds shrank to a three-year low of 53.7 million on Friday, a drop of 3.6 million from the June 2011 peak.
The retreat, spurred by slowing economic growth and a shift towards higher-yielding wealth management products, is fuelling losses in the Shanghai Composite Index that erased US$571 billion of market value in the past four years and sent the gauge to a five-month low on Monday.
While Societe Generale says bearish sentiment is a buy signal, Asian Capital and Calibre Asset Management predict it will weigh on stocks in a market where individuals account for more than 80 per cent of trading volume.
Neway Valve, the first of what PricewaterhouseCoopers estimates will be US$41 billion of mainland listings this year, has tumbled 14 per cent since the close on its first day of trading. Almost half of the companies that have gone public on the mainland since June 2009 now trade below their listing price, while the Shanghai Composite Index's valuation is the lowest on record against global equities.
"Stocks may be cheap enough for long-term investors to consider, but they need to have holding power," said Norman Chan, the Hong Kong-based head of investment at Calibre Asset Management.
Liu Xi, a hotel marketing official in Shanghai who has not made any money since she invested 90,000 yuan (HK$115,000) in the stock market two years ago, is losing patience.
"I feel sad and frustrated about stocks," she said on Friday. "Even if IPOs rise on the first day, you'll need to keep an eye on the movement. Why should I bother to put money in a market I need to worry about every day?"
Liu said she invested in wealth management products offered by banks that advertised returns of about 6 per cent. The benchmark Shanghai Composite Index has declined 3.1 per cent so far this year.
Individual investors did not expect "large upside in the Chinese market and their investment horizons are short", said Anthony Neoh, a visiting professor at the National University of Singapore who is part of the China Securities Regulatory Commission's international advisory body. "Retail sentiment may come back if there is a clearer message that the markets will be better-regulated." he said.
Investments that have lured money from the stock market, including wealth management products, trusts and real estate, carry their own risks.
A troubled three billion yuan trust product distributed by Industrial and Commercial Bank of China that matures on January 31 has fuelled speculation of looming defaults by similar products. Cities including Shanghai and Shenzhen have tightened local property policies since November to contain price increases.
When individual investors exited the stock market, it was usually a buy signal because it led to lower valuations, David Poh, the regional head of portfolio management solutions at Societe Generale's private bank, said on Friday.
The Shanghai Composite Index trades at 1.3 times net assets, a record 35 per cent discount against the MSCI All-Country World Index.