On October 16, 2024, around 200 million individual investors in China surged into the “bull market,” only to quickly discover a sharp downturn in the stock market and be forced to retreat. Chinese netizens wrote, “The Chinese stock market is not just fearsome, it’s terrifying.”
From late September to early October, the $9.7 trillion Chinese stock market experienced a rapid cycle of soaring and plummeting. Following the announcement of stimulus measures by the Chinese Communist Party, the Shanghai and Shenzhen 300 Index surged by 25% within five trading days.
Major inflows from Chinese savers into the stock market began in early October, but almost immediately, a buying frenzy started to reverse. On October 9th, amidst widespread doubts about profit-taking and when the next major stimulus measure would be announced, the Shanghai and Shenzhen 300 Index plunged by 7%, marking its worst performance since the beginning of 2020.
On the same day, the term “cancelling securities accounts” appeared 56 million times on the social media platform WeChat. In the weeks prior, it appeared less than 10 million times per day. Retail investors lamented their losses on social media, regretting following the hype of the “bull market” and impulsively entering the market.
Around the same time, an index compiled by the Industrial and Commercial Bank of China showed an increase in transfers from securities accounts to bank accounts, reversing the trend of small investors using savings for market transactions in the first week of October. This indicated that savers quickly moved funds from stock trading accounts back to savings accounts.
The swift emotional turnaround of retail investors weakened bullish hopes, as the market had initially relied on China’s vast army of individual investors to drive long-term market gains. Chinese individual investors hold deposits totaling $21 trillion.
Bloomberg stated that the reality check faced by retail investors highlighted serious challenges to the national vision of the Chinese Communist Party leadership. Despite the emphasis on so-called “new quality production forces” and promoting economic development through technological investments, analysts pointed out the need to revitalize stagnant consumer demand.
Retail investors who felt deceived by the collapse of the brief “bull market” expressed dissatisfaction with the official Chinese media and online media’s instigation. Small investors felt they were initially intrigued and believed this was a once-in-a-lifetime investment opportunity they couldn’t miss, leading them to quickly deploy funds into the stock market. However, as the market sentiment reversed, panicked retail investors chose to immediately exit, turning this force into a negative factor impacting the stock market and exacerbating price volatility.
32-year-old Beijing technology industry worker, Sheldon Wang, impulsively transferred funds to his trading account after the initial surge in the stock market. However, after the stock market reopened following a week-long public holiday and witnessed a sharp decline, he promptly withdrew his investment.
“Everyone is talking about the stock market – the policy outlook and the undervaluation of Chinese stocks – you can see discussions everywhere on social media,” he told Bloomberg.
Mr. Wang said he had been quite pessimistic about the economy and the government’s determination to boost the market, and this market crash left him disillusioned, wiping out his stock gains before the holiday.
The Chinese stock market reflects the level of confidence in Beijing’s economic recovery plans, while the anxious mood among retail investors indicates fragile confidence.