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Small investors get the heebie-jeebies
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IN China’s equity market, it will take more than one day of gains to restore bruised confidence.
The Shanghai stock market staged a decent rebound yesterday after days of steep declines and panic selling.
However, many individual investors who form the backbone of the market have been burned badly and are not likely to forget quickly the bitter lesson they learned when stocks go from boom to bust.
An estimated 90 million retail investors — mom and pop investors, as they are often called — were in the stock market when it began to crash in mid-June, following a meteoric rise since the start of the year. Those who rode the bull rally from the start probably are still in the money. Those who jumped on the bandwagon late in the frenzy because “everyone else was doing it” are still probably nursing losses.
When I stepped into the trading hall of Shenyin & Wanguo Securities in Shanghai at 9:15am yesterday, it was like walking in a senior citizens’ club.
Fifteen minutes before China’s stock market started another day of trading, a bevy of white-haired investors had already gathered in front of a wall of screens that display stock market quotes. They were reading newspaper and discussing what might happen next.
The market opened lower, with the benchmark Shanghai Composite Index falling as much as 3.8 percent. That piled onto the 30 percent wiped from market value since mid-June.
“The decline seems bottomless, and I’m already numbed by the plunge,” said Dong Xinguo, a 65-year-old retiree.
Dong, who vowed not to touch the stock market again after being hit by a dramatic stock market plunge in 2007, mustered up his confidence, put aside his concerns and reinvested in stocks again late last year.
He thought he had struck it rich. The stock market staged a blistering rally in the first half of the year, sending the Shanghai Composite Index up more than 100 percent to June’s high of 5,178 points. Dong’s stock-trading account soared 40 percent to 700,000 yuan (US$112,705).
But the euphoria didn’t last long. The stock market crash in the past few weeks reversed Dong’s gain to a loss of 200,000 yuan. One of his stocks, Sichuan Changhong Electric Co, plunged to 6 yuan a share from a mid-June high of 15.09 yuan.
“History appears to repeat itself,” Dong said ruefully. “I forgot the lesson I learned years ago — stay away from the market.”
Just as Dong was speaking, the Shanghai Composite turned from red to black and continued in positive territory the rest of the day.
“The rebound pared some of my losses, but there’s still a long way to go to recover all my losses,” he said.
The Shanghai index ended the day with a 5.76 percent gain. More than 1,200 stocks on the Shanghai and Shenzhen bourses hit the daily-limit up of 10 percent.
The skeptical would say the market isn’t really operating as a free market right now. Nearly half of shares have been suspended from trading at the request of companies, and the government has banned large shareholders with 5 percent or higher stakes in a company from selling those shares.
These developments were part of a concerted effort in the last week to stop selling panic and shore up confidence. The government earlier directed state-owned companies and executives to buy shares, raised the amount of equities insurance companies can hold and promised more credit to finance trading. Initial public offerings have been put on ice, and the People’s Bank of China has sought to boost liquidity via state-owned margin finance firm China Securities Finance Corp.
What all this extraordinary intervention will mean for the government’s now-stalled drive to deregulate the markets remains to be seen.
Yesterday’s rebound may have dispelled some of the gloom hanging over small investors, but jitters remain and caution prevails.
Wang Huiying, a 60-year-old investor who came to the trading hall with some groceries in tow, said she decided to grab the chance while she could and dump some of her holdings.
“Who knows how long any rebound will persist?” she said. “The market has become so volatile and things can change in a second.”
Wang is luckier than many other investors because she was still in the money even after the market crash. She sold some of her shares yesterday when they posted gains.
“It would be wise to stay away from the market for now and see how things develop,” she said.
In addition to “mom and pop” investors, many young people who dived into the stock market without any prior experience in trading also have learned a hard lesson in the law of market gravity.
Liu Xiaotian, a university finance major student in his junior year, started stock trading last October with 90,000 yuan from his savings. He said he was hoping to make some pocket money with investment theories he learned in class.
So much for theory. His account went from nearly a 50 percent gain earlier this year to a loss of 30 percent at present.
“All theories seem useless when you face a market crash,” Liu said.
Liu said he forgot the stop-loss strategy he was taught to deploy when a market starts to go south, and he found himself sinking deeper and deeper into losses. He said he believed the government would intervene to stop the bloodletting
“I’m like a frightened little bird now,” Liu said. “I plan to wind down my investment in stocks when a rebound pares some of my losses. In future, I will pay more attention to risk control and strictly adhere to the loss rules.”
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