Analysis-Chinese retail investor rushes stocks By Reuters

By Samuel Shen and Summer Zhen

SHANGHAI/HONG KONG (Reuters) – Day trader Lu Delong’s hopes for a rally in Chinese stocks quickly evaporated in the first week of the year when, just three months after setting the stage for the process strengthened by the commitment of Beijing, who was forced to abandon the elements. and counting his losses.

Many retail investors like Lu sold shares in early January, making for the weakest start to the new year in nearly a decade for China’s $11 trillion stock market.

“It is brutally sold beyond my understanding. I have not seen Trump announce anything new against China,” Lu said, referring to the uncertainties related to the policy. of US trade under President-elect Donald Trump.

“The only reasonable explanation is that the market is pressuring the government for stronger policies,” said Lu, who reversed the Chinese currency in late September but now plans to hold the currency during the holidays. a Chinese New Year. starting at the end of January.

Frustrated by economic policies and worries about US trade tariffs, retail investors are selling, threatening to push Chinese shares back into long-term declines.

Chinese stocks saw their first annual gain in 2024 after an unexpected three-year slump caused by the COVID-19 pandemic, woes in the goods sector and weak consumer confidence. .

Retail accounts for about 70% of China’s trade, so there is a risk that the sell-off could lead to an inefficient slide in bets and losses that could hamper Beijing’s efforts to stabilize financial markets.

The government needs a stable bull market to support economic recovery but another boom-and-bust will “destroy wealth, abuse and damage China’s economy”, said Dong Baozhen, chairman of the Beijing property manager Lintong Shengtai.

The sell-off could mean another vote of pessimism from investors who have already lost faith in China’s economy in the yuan and bond markets, prompting the government to join to catch the fall in currency and bond yields.

‘SHINING WATER’

Markets appeared to be on the verge of recovery at the end of September when Beijing announced interest rate cuts and a bid to protect markets. Desperate investors jumped in and drove the benchmark index up as much as 40% within two weeks.

The broader market softened as investors awaited firmer policies, but the retail business remained active, evidenced by higher profits, rising prices of smaller units and expansion the fastest of bets.

Signs of disappointment emerged in early 2025, with shares in Shanghai and Shenzhen down 6% year-to-date, making it the world’s worst-performing stock market.

“Policymakers lit a fire on dry wood, but the fire is extinguished by cold water,” said shopkeeper Zhang Jianan, referring to the implementation of half-baked policies.

The People’s Bank of China has set up a 500 billion yuan ($68 billion) exchange facility to support the purchase of shares by institutional investors but by the end of 2024 only 50 billion yuan is under the plan , reflecting the institutional skepticism.

“When you see financial institutions plowing money into bonds and high-yielding stocks, you know that those with deep pockets are optimistic about the economy. Market behavior doesn’t lie,” Zhang said. said.

Foreign investors have also left the market.

Global hedge funds raised exposure to China during last year’s stimulus-led rally but have recently eased them, while global long-term funds have “sat on the sidelines”, Goldman Sachs wrote.

WAIT FOR PAPA

The biggest difference could be that “the market is expecting a ‘big explosion’ while Beijing is in a ‘wait and see’ mode, waiting for growth conditions and Trump’s policies”, said Yan Wang, major emerging markets and China Alpine strategist. Macro (BCBA:).

“At the moment we still consider China a smart business.”

Hao Hong, partner and chief economist at GROW Investment, said Trump’s threat to impose 60% tariffs on Chinese goods is a major source of uncertainty.

“The market is volatile now, and Trump is not well known, so it’s not a good time to rush,” said Hong, who has no Chinese stocks in his multi-asset fund.

“Now it’s just a matter of waiting, waiting for policy changes. If there is no opportunity, don’t act. Be patient.”

With nearly half the yuan’s worth of debt plowed into the market since late September, a poor return could trigger net calls and the next move could knock the Shanghai index below a milestone of 3,000 points this month, said a Shanghai-based investor. Mao Jian.

The index in Shanghai ended on Monday at 3,160 points, 5% above the level, which is seen by many investors as psychologically important and with the national currency as important to protect.

In order to prevent another crisis, China should expand the central bank’s balance sheet aggressively and establish an independent fund to stabilize the market, because “when the wood is wet, you need fire.” bigger to burn”, shopkeeper Zhang said.

($1 = 7.3320)