In recent times, the Chinese stock market has experienced a roller-coaster ride, with A-shares plummeting after the National Day holiday. New investors suffered heavy losses, such as a programmer in Chengdu, Sichuan Province, who lost 320,000 yuan in just four days. This news became a top search on Baidu on October 13.
According to Post News on October 13, the media interviewed stock investors across China on the 12th. One of them is a programmer named Mr. Yang, also known as Yapie, from Chengdu, Sichuan. He is a post-90s generation and bought stocks heavily on the first day back to work after the holiday.
Mr. Yang revealed that he entered the market on October 8, buying 1.02 million yuan worth of stocks. He made a profit on the first day, but then lost over 70,000 yuan on the second day and a staggering 310,000 yuan on the third day. By the end of the four trading days, he had lost a total of 320,000 yuan.
Xu Xiaoniu, a 30-year-old full-time stock trader from Tongling, Anhui, has suffered losses of about 1.5 million yuan in her three years of trading stocks.
Talking about their experiences in the recent stock market, she said, “In this bull market, I initially made around 300,000 yuan. But on the last trading day of the week, I lost all profits and an extra 20-30,000 yuan.” She also mentioned that her confidence built before the holiday was shattered. She advised new stock investors not to borrow or add leverage, emphasizing the importance of protecting the principal.
Mr. Cao, a stock investor in his 80s from Rizhao, Shandong, entered the market with 80% of his funds on September 30. While he made good profits on the first day after the National Day holiday, he failed to sell and witnessed a significant decline in profits on the last trading day of the week. He has now cleared out his positions, luckily avoiding losses on the principal.
Ms. Liao from Jinan, Shandong, was lured into the stock market by her colleagues’ talks about the good market conditions. She invested 300,000 yuan right after the holiday, only to see her account shrink by 25% after four trading days. She expressed her anxiety about the market’s decline, affecting her sleep and overall well-being.
On October 12, a staff member from a brokerage firm told Post News that challenges faced by stock investors in the market include market thresholds and adapting to market fluctuations. For instance, high-risk stocks like ST shares have a relatively low entry point but hold significant risks of delisting.
The staff member advised investors to have basic knowledge of the stock market, understand historical market volatility, refrain from leveraging excessively, and maintain a rational investment mindset. They recommended using spare money for investments, avoiding excessive greed, and planning finances carefully. It is suggested to steer clear of blindly following trends and impulsive trading for risk management.
While retail investors faced losses in the stock market, major shareholders of listed companies and institutional funds have been exiting on a large scale.
According to Daily Economic News on October 12, from September 24 to October 11, 172 listed companies issued announcements of reducing holdings. Data from Wind showed that on October 8 alone, the net outflow of funds from the Shanghai and Shenzhen stock markets totaled 169.815 billion yuan. The ChiNext board saw a net outflow of 45.182 billion yuan, while the net outflow from the Shanghai and Shenzhen 300 amounted to 55.736 billion yuan on that day.
In response to the recent influx of investors in the stock market, Chinese economist Ren Zeping gave nine suggestions to stock investors on October 12. Among them, one key advice is to use spare money for investments, avoid a gambling mentality, and steer clear of blind leveraging. Ren Zeping emphasized the importance of investing with money that won’t affect one’s daily life and cautioned against risking all assets in a bull market, as well as borrowing to invest. Such a gambler’s mentality could not only impact physical and mental health but also lead to financial instability and influence work performance and sleep quality.
Furthermore, a bull market does not guarantee profits. It is advised to avoid chasing highs, selling lows, frequent trading, and erratic behavior. Ren Zeping highlighted that market behaviors can create a false sense of expertise among investors, leading to aggressive actions based on luck rather than informed analysis. Engaging in frequent buying and selling incurs high transaction costs. Considering that the Chinese stock market primarily consists of retail investors and carries policy-driven characteristics, A-shares are known for their short bull markets and prolonged bear markets. Past data shows that A-share bull markets averaged about 12.99 months, while bear markets lasted approximately 27.12 months. In contrast, the stock market in the United States averaged around 43.68 months during bull markets and only about 16.74 months during bear markets.
Retail investors are at a disadvantage in terms of expertise, information, and capital, exacerbating the emotional market fluctuations in A-shares. Due to their lack of risk awareness, erratic decision-making, and inadequate expertise, retail investors often lose money in volatile market conditions.
Ren Zeping further advised investors to rationally assess market fluctuations, respect market rules, avoid being swayed by emotions, elevate cognitive understanding, select suitable investment approaches within their capabilities, diversify investments, and make informed decisions without letting emotions cloud judgment.
Chinese scholar Wang Mingyuan also warned retail investors in an article on September 9 titled “Even in a bull market, it’s hard for small and mid-sized retail investors to make money.” Based on studies of the Statistical Yearbooks published by the Shanghai Stock Exchange since 2007, Wang found that as of the end of 2022, out of the 46.38 million stock accounts on the Chinese mainland, only 12.49 thousand belonged to institutional investors, while the majority, totaling 46.26 million, belonged to individual investors, accounting for 99.73%. Among individual investors, nearly 90% are small retail investors with capital below 1 million yuan, with more than 23.05 million accounts having less than 100,000 yuan, making up almost half. These small retail investors only receive a very small portion of returns. Referring to the last available data from 2017, Wang showed that individual investors contributed to 82.01% of trading volume but only gained less than 9% of the profits from A-shares. In comparison, institutional investors accounted for less than 18% of trading volume but acquired over 91% of profits.
The article posits that small retail investors in the Chinese stock market increasingly find themselves in a position of “running for others.” These statistics serve as a warning to investors: during a bull market, caution is advised, as it often serves as a channel for financial loss.
In an effort to stimulate the sluggish Chinese economy, there was a continuous rise in A-shares for ten trading days starting from September 24, driven by the Chinese authorities.
However, the good times were short-lived. On October 9, A-shares faced a major plunge, with the Shanghai Composite Index dropping nearly 7% at one point, ultimately closing down by 6.62% below 3300 points, marking the biggest single-day decline since February 2020. The Shenzhen Component Index fell by 8.15%, the ChiNext Index by 10.59%, and the Nasdaq-style Star 50 Index by 12.11%, achieving the largest single-day drop in history.
On the 11th, the three major A-share indices experienced another decline. At the close of the day, the Shanghai Composite Index stood at 3,217 points, down by 2.55%; the Shenzhen Component Index at 10,060 points, down by 3.92%; the ChiNext Index at 2,100 points, down by 5.06%; and the Sci-Tech Innovation Board (STAR Market) 50 Index fell by 5.79% to 898.9 points. The total turnover of the two markets amounted to 1.57 trillion yuan, a decrease of 571 billion yuan compared to the previous trading day.