Jake's View | Fear not the retail investor - for now

Institutional investors were most welcome, he [CSRC chairman Guo Shuqing] said, as they were more mature and had more expertise than individuals, who make up 84 per cent of the mainland's stock market participants and whose irrational transactions exacerbated price fluctuations.

I'm not quite sure how the China Securities Regulatory Commission defines "mature" but I reckon that the average age of the individual investors who inhabit stockbrokers' offices is about 60, while the dealing rooms of institutional investors are largely staffed by kids fresh out of college.

Nor do I believe that the stock market transactions made by individuals in the mainland are irrational. Seen individually they may be, but put millions of individuals together and you generally get very rational thinking out of the group. Village decisions have a way of being consistently right.

I think the bigger danger actually comes from institutional investors whom the straitjacket of a university education has conditioned to think alike. In my view they do more to drive any stock market to senseless rallies and panic-stricken crashes than the retail punters do. Foreign institutions are particularly bad on this.

In the case of the mainland's stock markets, however, the retail trade appears to have been in the driver's seat. While domestic and foreign institutions have talked big about the limitless potential of Chinese equities, individual investors have noticed that the potential has taken a very long time coming and have pushed the market down.

The first chart shows just how far down this has been relative to China's gross domestic product. Rarely has any market been so out of synch with its underlying economy. One of these two is telling us lies.