The Chinese Investors Who Matter Most Are Losing Faith in Stocks

Finding the Silver Lining in China's Meltdown
  • CSI 300 caps 9.9% weekly loss even after rally on Friday
  • `Technical analysis doesn't work, fundamentals don't work'

Hua Jie, a 56-year-old retiree in China’s Sichuan province, hasn’t been this downbeat on the nation’s stock market since she began investing more than a decade ago.

“I no longer want to play this game,” said Hua, a former saleswoman at a consumer electronics store in the city of Chengdu. “I’ve lost faith in the regulators.”

Her feelings of exasperation are hardly unique. After one of the wildest weeks in recent memory for the most-volatile major stock market on the planet, even battle-hardened individual investors in China are getting fed up. And unlike most major markets, their opinions matter: individuals drive more than 80 percent of trading on bourses in Shanghai and Shenzhen, versus about 15 percent in the U.S.

It’s not only this week’s 9.9 percent tumble in the benchmark CSI 300 Index that’s driving locals away. Their biggest gripe has been what they see as a botched effort by Chinese authorities to manage the market. Regulators scrapped a four-day-old system of circuit breakers on Thursday after they were blamed for inciting investor panic rather than restoring calm.

Policy makers echoed those concerns upon suspending the mechanism, saying the circuit breakers had a "magnet effect" when they shut the market twice this week. As the stock market approached levels that triggered a trading halt, some investors traded ahead of it, “accelerating the decline towards the trigger and deepening the selloff,” they said in a statement. “On balance, the current negative impact outweighs the positive effect.”

Surging Volatility

For Pan Weiting, there’s a growing sense that authorities are doing more harm than good as they attempt to stabilize markets. The 31-year-old accountant in Shanghai has been selling stocks over the past few days and plans to cut holdings further, even after the CSI 300 rallied 2 percent on Friday as state-owned funds were said to buy shares.

“There’s too much intervention and we investors sometimes feel at a loss and don’t know what to do,” Pan said. “Technical analysis doesn’t work here, fundamentals don’t work.”

Volatility in the CSI 300 surged to the most extreme level worldwide this week, with a gauge of 10-day price swings rising to a four-month high.

Still Optimistic

Some investors are willing to ride out the volatility because they’re confident share prices will rise over the long term. The benchmark Shanghai Composite Index has, after all, climbed more than 3,000 percent since the ruling Communist Party first allowed share trading in 1990.

Liu Yang, who works in the Internet industry in Beijing, started trading stocks in his parents’ accounts in 1999 and earned about 250,000 yuan ($37,928) from his own holdings as shares rallied last year. While he’s down 100,000 yuan since late December, Liu says he has no plans to cash out. He expects the government to encourage a bull market so over-indebted companies can raise fresh capital via share sales.

“I’m still optimistic about the full-year performance,” Liu said. “I won’t cut positions or even exit the market just because of some short-term turbulence."

For investors who like to move in and out of the market quickly, the volatility has been hard to resist. Jayden Tong, who works in the technology industry in Hangzhou, sold all his holdings at the end of last year. He piled back into the market on Friday, buying 100,000 yuan of brokerage shares, and plans to sell on Monday to turn a quick profit.

While Hua, the retiree in Sichuan province, says this week’s selloff left many of her friends in a panic, she does see a bright side to the turmoil. Now that she’s decided to give up on stocks, she no longer feels compelled to spend her days in front of a computer screen monitoring the market.

“I can spend more time traveling. Yunnan province and New Zealand are on my list this year,” Hua said. “I can live a healthier lifestyle.”

— With assistance by Tian Chen, Amanda Wang, and Shidong Zhang

Before it's here, it's on the Bloomberg Terminal. LEARN MORE