The swelling crowds at Shanghai’s street corner stock salon show rampant speculation is on the rise.
On a cigarette smoke-filled street corner in Shanghai, 70-year-old stock picker Yu held court for a crowd of onlookers eager to hear about his investment strategy.
“Stocks can only be speculated,” said the pensioner, dressed in a red and blue checked shirt and khaki cargo trousers. “Once invested, you lose.” To emphasize his point, he scrolled through what appeared to be share transactions on his smartphone, as the impromptu audience huddled under a canopy of umbrellas to guard against the rain.
“If a stock I buy doesn’t make me any money, within three days I would dump and buy a new one,” said Yu, who only wanted to be identified by his surname, espousing an approach that typically sees him make hundreds of trades a week.
For more than 30 years, such scenes played out daily near Shanghai’s Bund waterfront as small-time investors congregated to swap tips and market gossip, rain or shine. The so-called stock salon at the corner of Guangdong and Xizang roads went largely quiet after the market crash in 2015 and as investors increasingly moved online. It died altogether during the Chinese megacity’s Covid lockdown in the spring of 2022.
But a stimulus-fueled rally that started in late September has breathed new life into the curbside forum, with the swelling crowds and buoyant mood indicating renewed faith in the world’s second-largest stock market.
On a warm and drizzly Saturday afternoon in late October, some 200 men and women jostled for space at the salon as they debated trading tactics, the market outlook and how to position portfolios amid the prospect of worsening US-China tensions.
Yu’s rapid-fire approach is common among mom-and-pop investors in China who trade in and out frequently, often based on investment tips from friends and online influencers. And while the growing crowds at Shanghai’s stock salon indicate the government’s efforts to spur investor confidence are working, the garrulous nature of the forum also speaks to the challenges of building a mature and stable market.
Unlike more developed exchanges that are driven by institutional investors, China’s bourses are dominated by an army of 200 million retail investors. As well as being swayed by rumor, they’re known for trading stocks based on homophones — words that sound similar to another name or a phrase. As the US presidential election results unfolded during Asia trading on Nov. 6, for example, a company whose Chinese name sounds to Mandarin speakers like “Trump wins big” surged 10%, while a stock that sounds like “Harris” dropped 7.1%.
Critics say such an approach is more akin to spinning a roulette wheel at a casino than a sound investment strategy, and excessive speculation has regularly magnified volatility and led to frequent boom-bust cycles. It also complicates the government’s goal of turning the $10 trillion stock market into a source of wealth for households and long-term funding for businesses.
“The Chinese market is still immature,” said Shu Taifeng, a partner with Shanghai Chongyang Investment Management Co., a major domestic hedge fund. “Investor education remains an arduous task.”
Under the late leader Deng Xiaoping, who famously said “to get rich is glorious,” China set up stock exchanges in Shanghai and Shenzhen in 1990. Surging stock prices in the early years lured millions of retail investors, prompting regulators at the time to create a lottery system for the purchase of newly issued shares. Anger over alleged corruption in the system led to a riot in Shenzhen in 1992.
Authorities have made significant progress in improving market transparency through regulatory supervision and better corporate disclosure. Investor access to information has widened, thanks in part to a proliferation of financial information apps. China’s bourses have grown into the world’s second largest by market capitalization, raising badly needed capital for more than 5,000 state-run and privately controlled enterprises.
The base of institutional investors has also expanded. The mutual fund industry has grown from virtually nothing in the 1990s to about $4.5 trillion, while the hedge fund sector has ballooned to $715 billion. Many overseas firms like Fidelity International Ltd., Blackrock Inc. and Bridgewater Associates have set up shop in China, and regulators continue in their efforts to bring in long-term investment, or “patient capital,” from insurers and pension funds.
But speculation by retail investors still reigns. Daily turnover, or the value of shares changing hands each day, reached a record 3.45 trillion yuan ($476 billion) in early October. Market sentiment has soured over the past week after an underwhelming fiscal stimulus announcement and amid concerns that US-China relations will worsen when Donald Trump returns to the White House. But despite the recent declines, the benchmark CSI 300 Index is still up almost 28% from its September low. And although transactions have moderated to some 2.3 trillion yuan, turnover is still almost four times what it was before the rally and dwarfs the level experienced by major stock markets in India and Japan.
Among those retail investors who are impatient is Wu, an octogenarian who’s been visiting the stock salon every Saturday since late September as he seeks to exit a bad investment made more than 10 years ago. The Shanghai native, who invested a chunk of his life savings in a state-run construction company after reading a glowing local newspaper report, said the stock is still down more than 30%. He’s planning to sell a quarter of his stake once the price breaks even and will cash out entirely if it rises further.
“I’m not doing well in this life,” Wu sighed, bemoaning repeated scolding from his wife. “I don’t want to play stocks again.”
Apparently worried the rally will peter out, the pensioner, who asked to be identified only by his surname, urged other investors at the forum to take a long-term view. “This is a bull market, but it’s a slow bull. You can’t eat hot tofu if you’re in a hurry,” he said, using a popular phrase that emphasizes the need for patience.
Retirees make up a big proportion of the salon crowds. While many younger investors have migrated to online platforms, the older regulars are nostalgic for the pre-smartphone era and clearly enjoy the debate.
As the street forum grows in popularity, it’s also attracting an increasing number of livestreaming influencers, who earn commissions by bringing traffic to social media platforms. That in turn can amplify the rumor mill and increase speculation. In a sign that authorities are becoming uneasy, there was a fairly large police presence on Nov. 9 as hundreds of people gathered at the forum. Uniformed officers roamed through the crowds to stop livestreamers and onlookers from filming the gathering with their phones, mostly to no avail.
“Retail investors are often driven by emotions, and many decisions are irrational,” Xiang Xiaotian, a director at Shanghai Chengzhou Investment Management Co., said about the growing crowds at the salon. “The regulatory authorities certainly do not welcome this phenomenon.”
Like the influencers, some visitors smell business opportunities.
Sitting on a small wooden stool on a recent Thursday afternoon, a middle-aged man who gave his surname as Yan was busily demonstrating stock-charting software on the screen of a laptop perched on a small desk. “This stock may double,” he told onlookers, while pointing to a candlestick chart crisscrossed with colored lines.
He was selling the software for between 50 and 200 yuan. The seemingly low price came with a caveat: Buyers should follow his social media account and send him money if they profit from the tool.
“You can wire me a hongbao,” said Yan to a prospective customer, referring to the luck-bringing practice of gifting red envelopes containing cash. In a sign of the times, such gifts are increasingly sent electronically.
Written by: Bloomberg News @Bloomberg
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