Across The Border

Small investors’ losses continue to pile up as stock recovery hopes fall flat

Despite lengthy experience many retail players had hoped prices would surge this year after the disastrous blow-out which began in the middle of last year

PUBLISHED : Friday, 16 December, 2016, 6:43pm
UPDATED : Friday, 16 December, 2016, 9:27pm

The stock market has given mainland individual equity investors another cold shoulder, despite their pinning high hopes on a strong rebound to recover part of the losses they suffered at the beginning of the year.

The benchmark Shanghai Composite Index has shed about 12 per cent so far this year, and it is still 40 per cent off the close reached on June 12 last year, after which a stock market rout started.

“It is another disappointing year,” Shanghai Shiva Investment hedge-fund manager Zhou Ling said. “The regulator’s efforts to bolster investor confidence didn’t work.”

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A survey by Hitlink Royalflush Information Network, a financial information provider, showed the A-share market had more than 100 million retail investors and most of them were seasoned investors with equity trading experience of more than five years.

The small investors would use years’ worth of savings to play stocks amid a belief they could take advantage of price swings to make profits.

The boom-to-bust cycle last yearwhich prompted the China Securities Regulatory Commission to take a series of drastic steps to stem a slide left most of the small investors carrying the empty bag.

A Shanghai-based retail investor with five years’ experience trading stocks Frank Feng said: “We were expecting a rebound following a sharp fall last year.

“Normally, policy support from the regulators could lead to a rebound.”

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Beijing spent more than one trillion yuan (HK$1.11 trillion) of rescue funds to put a floor under the plummeting stocks, temporarily suspending initial public offerings and limiting short-selling on the financial futures exchange to stabilise the market.

Besides, the CSRC also abandoned a plan to create a new board at the Shanghai Stock Exchange that was designed for companies in emerging industries.

Reform measures to ease the IPO approval procedure were also put off to shore up investor confidence although the regulator was criticised for failing to live up to its promises of supporting the real economy.

Investors like Feng took a cue from the regulatory moves, loading up more shares worth 100,000 yuan at the beginning of this year.

Feng said he went along with the “national team” – the government-backed institutions such as the national pension fund, state-owned insurers and brokerages – to bet on a turnaround on the weak market.

“The government was looking for stability on the market and a market stability was of great importance to the social order,” he said. “I thought it was safe to buy stocks at that time.”

A bear run on the A-share market, with millions of retail investors stuck with heavy paper losses, is seen as a threat to China’s public order because some of the disgruntled investors would take to streets to protest against regulators’ inertia.

Two sources close to the CSRC said the regulator was giving a priority to market stability while taking a go-slow approach in implementing planned reforms.

Hitlink’s survey showed that 57 per cent of retail investors lost money on the stock market in the first three quarters of this year and 17 per cent of the respondents broke even.

Another Shanghai-based seasoned retail investor Dong Yanjun said he was unfazed despite admitting that he was one of the investors losing money on the stock market this year.

“You need to be patient in playing stocks,” he said. “A turnaround will take place sooner or later.”

China’s individual investors believe they have Warren Buffett-style investment wizardry.

Each of them would have their own investment philosophy and show their confidence in making profits on the stock market.

When a strong rally began to take shape in late 2014, most of them went on a rampage, betting on a further surge that could help the key indicator rewrite an all-time high set in mid-2007.

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Shenwan Hongyuan Securities analyst Qian Qimin said: “Mainland investors still have a speculative mood on stocks.

“They ignore fundamentals and are cocksure about their own investment strategies.”

For the past two decades, the CSRC has been striving to educate retail investors, encouraging them to buy stocks on valuation rather than rumours.

The Hitlink survey also found that 47 per cent of retail investors allocated more than half their personal net worth in A shares.

The efforts proved to be unsuccessful.

“Sometimes, it’s a guessing game,” said Feng. “Investors like me have accumulated enough experience in the game and will become smarter and smarter.”

Feng and Dong both said that they expected the key indicator could hit 4,000 points next year, nearly 30 per cent higher than the current level.