NewIt's amateur hour in China amid boom in penny stocks
Pressure grows on the authorities to educate inexperienced investors while speculative moves in low-priced stocks are deterring institutions
As China's retail investors pour back into the world's hottest stock market, they are leaving their fingerprints all over the place. The most telltale sign: the Chinese equivalent of penny stocks, assets that have long held an allure for amateurs, are trouncing the benchmark index.
Shares in the CSI 300 Index that were quoted below five yuan at the end of September have since jumped an average 63 per cent. That compares with a 35 per cent gain for all index stocks and 11 per cent for those priced above 50 yuan.
That rally reflects the growing market impact of inexperienced investors in a country where new stock accounts are opening at the fastest pace since 2007 and individuals comprise about 80 per cent of equity trading.
While professional investors measure a stock's worth relative to the company's assets or earnings prospects, it is the price on computer screens that matters most to people like 35-year-old housewife He Mei. As she sees it, the math is simple - low price equals low risk and lots of value.
"Expensive stocks are risky," she said from Chengdu, the capital of Sichuan province. "Any drops will result in huge losses."
He says she recorded a return of about 60 per cent in her 300,000-yuan account since Beijing cut interest rates in November, compared with 37 per cent for the CSI 300. She bought her most profitable stocks at prices below 20 yuan and says she will not touch shares above 50 yuan.