Tencent bans thousands of WeChat accounts for peddling fake stock tips as China's retail investors face volatile market

Tencent, operator of China’s dominant messaging app WeChat, said it blocked 8,000 groups and 4,000 personal accounts in the first half of this year for spreading investment rumours that “disrupted equity trading”.

Individual investors account for more than four fifths of China’s equity trades and some retail investors, who do not have access to professional investment guidance, buy and sell stocks blindly based on rumours circulating on WeChat, which boasts 1 billion users.

Using counterfeit identities, rumour mongers draw retail investors into WeChat groups where they are bombarded with stock tips, according to Tencent. Some purport to be professional investment advisers and charge fees for their guidance, claiming they can accurately predict the movement of some stocks.

Others live-stream their equity trades on WeChat groups or live-stream platforms and convince their followers to buy specific stocks.

Some of the scammers even forge transaction records to lure individual investors to put money into the fake trading platforms, promising high returns and a free trial as bait.

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“These behaviours have violated laws and regulations as well as seriously harass WeChat users,” Tencent said in a statement released last week. “Users should raise awareness of investment prevention and pay attention to authenticity of the information.”

When reached by phone on Monday, Tencent had no comment on whether the crackdown was in response to a request from regulators.

The closure of the dubious WeChat accounts comes during a prolonged slump in the Chinese stock market which has seen the Shanghai Composite index drop 17 per cent over the past six months and the Shenzhen Component Index fall 18.6 per cent in the same period.

With 141 million retail investors, who account for 85 per cent of China’s total trading volume, investment sentiment can easily be manipulated by rumours which quickly spread on WeChat and other messaging platforms.

The WeChat statement about cracking down on stock scams was read by more than 100,000 people and received several hundred likes. “If these people can predict the ups and downs of stocks, why are they wasting time chatting with you and not make money for themselves?” said one retail investor.

Another, who said he was cheated out of 100,000 yuan, wrote: “Someone added me as a WeChat friend and pulled me into a group where he recommended stocks every day.”

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It is not the first time Tencent has clamped down on such groups. Last December, WeChat blocked 1,100 accounts for spreading stock market rumours.

The problem of malicious stock rumours is not limited to WeChat. Other major Chinese social media platforms including QQ, Weibo and Jinri Toutiao, have been used to spread fake investment guidance designed to cheat individual investors.

Due to Beijing’s capital controls, individual Chinese investors face quotas if they want to invest in companies like WeChat’s parent Tencent, which is listed in Hong Kong.  

As a result, some have little choice but to invest into mainland Chinese listed stocks which are dominated by state-owned enterprises on the Shanghai bourse. While there are some smaller tech firms listed in Shenzhen, most of the big Chinese tech companies like Alibaba, parent of the South China Morning Post, JD.com, Baidu, Pinduoduo and Xiaomi, as well as Tencent, list their shares in US or Hong Kong

A new financial instrument introduced by Beijing in March, Chinese depositary receipts (CDRs), was designed to give local investors access to shares of Chinese companies listed overseas. But it was put on hold after plans to enlist Xiaomi as the debut CDR fell through.

The speculative trading among retail investors results in a volatile equity market in China. The average daily turnover on mainland Chinese markets reached a record high of 2.4 trillion yuan (US$353 billion) in 2015, according to Bloomberg data. That fell to 400 billion yuan in the three months through June this year, the lowest since the third quarter of 2014.

Additional reporting by Iris Deng