After the three trading days following the “Golden Week” holiday in China, the stock market went from a brief surge to a quick plunge, followed by mixed movements and generally returning to the levels seen at the end of September. Some Chinese scholars have written articles indicating that “even in a bull market, small and medium retail investors find it hard to make money.” There are also experts analyzing that this policy-driven bull market may very well repeat the crash of the stock market in 2015.
On October 9th, all three major indexes in the Chinese stock market experienced declines, with the Shanghai Composite Index closing at 3,258.86 points, plunging by 6.6%, marking the largest single-day drop in over four and a half years; the Shenzhen Component Index fell by 8.2%; and the ChiNext Index dropped by 10.6%, marking its largest single-day drop in history, with over 5,000 stocks across the market experiencing declines. Almost all the gains made in the past eleven days were wiped out in just one day.
Why did the “bull market” quickly turn into a nosedive? The chart of capital inflows and outflows compiled by Bloomberg drew market attention. The chart titled “Changes in Capital Flows in Shanghai and Shenzhen Stock Markets on October 9, 2024” showed that by the noon close on the 9th, both institutions and main players were frenziedly “selling out,” with a total net cashing out of 172.865 billion yuan. Only retail investors were seen making significant purchases, buying the large orders disposed of by institutions and main players.
Among them, the top three brokers with the highest number of orders sold were: UBS (7.2 billion yuan), Goldman Sachs (4.9 billion yuan), and Morgan Stanley (4.6 billion yuan), while the bottom three were Chinese firms Guotai Junan (1.8 billion), CITIC (1.7 billion), and CITIC Securities International (1.3 billion).
Social media platforms were flooded with complaints from retail investors, such as “the promised bull market is gone” and “blatantly slicing the leeks,” with continuous lamentations. The fact that “retail investors have become bag holders” quickly became a hot topic in the stock market.
In fact, regarding the trend of this policy-driven bull market, investment banks, major shareholders of listed companies, and retail investors have appeared to hold completely different views. According to reports by Caixin on October 9th, between September 24th and 30th, 186 listed companies disclosed plans for their major shareholders to reduce holdings, more than double the number from the previous week. By October 8th, 95 listed companies had disclosed plans for their major shareholders to reduce holdings, with 52 of them releasing new reduction plans.
Among them, the shareholder entities planning the largest reduction in shares were Shanghai Integrated Circuit Industry Investment Fund and Shanghai Technology Entrepreneurship Investment (Group) for Hua Hong Semiconductor, with plans to reduce 277 million shares, nearly 2% of the total shares of Hua Hong Semiconductor. Based on the closing price on the 8th, the expected reduction amount by the Integrated Circuit Fund and Entrepreneurship Investment Group is 742 million yuan.
Additionally, as of the 8th, the company with the highest percentage of total share reduction disclosed was Wan Lang Magnetic, with Anhui Gaoxin Jintong Anyi Erqi Entrepreneurship Investment Fund planning to reduce nearly 7.2 million shares, approximately 8.42% of the total shares, which constitute its entire holdings, indicating this could be a liquidation-type reduction. Based on the closing price that day, the reduction amount was 230 million yuan.
The influx of many retail investors being seen as bag holders has been associated with official propaganda and the hype generated by some “experts,” especially with a large number of post-90s and post-2000s newcomers taking risky plunges into the market encouraged by the authorities.
Ren Zeping, former chief economist at Evergrande, previously stated that after the “Golden Week” holiday, the A-share market would “open and close at the same level, allowing you to leave work early.” When this assertion proved wrong, he subsequently published several comments claiming that the first wave of adjustment in this bull market was nearing its end, and even stating, “A thousand gold coins cannot buy a returning bull; reverse and pick up passengers before setting off.”
In response to these promotional statements, an article by Chinese scholar Wang Mingyuan was published on the New Finance website on the 9th, titled “Even in a Bull Market, Small and Medium Retail Investors Find It Hard to Make Money.”
The article pointed out that many renowned economists or securities research institutions irresponsibly shouted, “The real bull market is here,” encouraging everyone to “get on board.” Some investors started feeling euphoric, reassessing their investment abilities and luck, unable to resist the urge to dash forward.
Citing statistics annuals released by the Shanghai Stock Exchange since 2007, the article indicated that by the end of 2022, there were 46.38 million stock accounts in mainland China, with only 12.49 thousand belonging to institutional investors and a vast majority, 46.26 million, to individual investors, accounting for 99.73%. Among individual investors, nearly 90% were small retail investors with capital not exceeding 1 million yuan, with over 23.05 million accounts having capital less than 100,000 yuan, accounting for nearly half.
The article mentioned that although small and medium retail investors contributed to the majority of stock trades in China, they only received a very small portion of the profits. Using the last profit distribution data published by the Shanghai Stock Exchange, from 2017, as an example, individual investors contributed to 82.01% of trade volume but received less than 9% of the profits. In contrast, institutional investors accounted for less than 18% of trade volume but garnered over 91% of the profits.
The article also cited the example of the sudden transformation of the bull market to a stock market crash in 2014-end to 2015-June, pointing out that only 0.5% of top retail investors and institutional entities took away the money of 97.5% of small and medium retail investors. The article sharply remarked that the “investment carnival” of retail investors in the early stages of a bull market seemed to be nothing more than a “costly overture,” as the ones who ultimately profited were the “big players watching the developments unfold.”
After the stock market’s significant drop on October 9th, the State Council Information Office of the People’s Republic of China announced on the same afternoon that a press conference would be held on the 12th, where the Minister of Finance, Liao Fo’an, will introduce details regarding intensifying the countercyclical adjustment of fiscal policies and promoting high-quality economic development, and answer questions from reporters.
Bruce Pang, Chief Economist of Jones Lang LaSalle Inc. for Greater China, stated that this would be a highly anticipated press conference because fiscal policies have always been a focus of the market’s attention. To launch projects announced by the National Development and Reform Commission announced as part of the Belt and Road initiative, it would require the support of the Finance Ministry, and for accommodative monetary policies to impact the real economy.
Morgan Stanley expressed that the Ministry of Finance would make it challenging for the market to believe in the firmness of its transition in inflation policies at the press conference on the 12th.
Commentator Zhang Tianliang, on his “Breaking Dawn” channel, mentioned that for China to boost the stock market, there would be a range within which the stock index would be raised internally, and significant fluctuations would be witnessed in the Chinese stock market multiple times.
He said, “In the coming period, short-term fluctuations may span weeks, and long-term fluctuations could extend over several months in the Chinese stock market. The reason for exaggerated surges is to lure more investors in, making retail investors feel they would miss the opportunity to get rich if they don’t board the train. The time of steep decline marks the beginning of harvesting the leeks.”
Economist Li Hengqing from the American Institute of Information and Strategic Studies told the Epoch Times that this rebound in the Chinese stock market was artificially created and similar to the surge in 2015, both being forcibly promoted “policy-driven bull markets” intending to draw around 15 trillion yuan of personal savings from Chinese society into the stock market. However, the outcome is highly likely to repeat the crash of the stock market in 2015.
“This rescue policy by the authorities is a big gamble for Xi Jinping, just like the policy introduced in 2015 to boost the stock market. However, the current economic reality and social situation are much graver than in 2015; at that time, there weren’t as many unemployed people, nor was there an economic crisis after the collapse of the real estate market. Currently, it is questionable how much financial strength the authorities have to support the stock market,” Li Hengqing stated.