As stocks dive, middle-class Chinese ask, 'Where is the bottom?'
A three-week plunge has wiped out more than $3 trillion in value on the Shanghai and Shenzhen exchanges. Nearly half of all listed Chinese firms have suspended trading, and investors are anxious.
A three-week plunge has wiped out more than $3 trillion in value on the Shanghai and Shenzhen exchanges. Nearly half of all listed Chinese firms have suspended trading, and investors are anxious.
Zhang Wei has invested in the Chinese stock market long enough to know that it鈥檚 not for the faint-hearted. But after a decade of ups and downs, and amid one of its sharpest-ever falls, he鈥檚 had enough.
鈥淚 will never get into the stock market again,鈥� says Mr. Zhang, an account manager for a Beijing-based asset management company. 鈥淚t鈥檚 not a good place for investments.鈥� Instead, he plans to count his losses 鈥� about $16,000 鈥� and hope for an improvement.聽
Chinese shares have tumbled more than 30 percent since hitting a peak in mid-June, and dropped another 6 percent Wednesday.
The rout has wiped trillions of dollars in value from China鈥檚 equities and led to a series of frantic state measures to stave off a deeper crash in the world's second largest stock market. In the past week, more than 1,300 or nearly half of Chinese listed companies have suspended trading in order to "self-preserve" as state media terms it.
Zhang, having lunch outside with friends near a Beijing office tower, speaks for a growing number in China鈥檚 burgeoning middle class who have seen their paper wealth evaporate and now feel a loss of confidence. Along with expensive real estate, the Shanghai and Shenzhen stock exchanges have provided an avenue of investment for young families and retirees alike, according to analysts. 聽
Irrational exuberance聽
Zhang won't quit his job in finance but says he will stop investing his own money. He is critical of what he calls government manipulation of asset markets, and is especially irked by state-media reports this spring that said Chinese stocks were undervalued, and implied the government would prop up prices 鈥� and eliminate risk.
鈥�The government鈥檚 efforts are useless, at least in the short term,鈥� Zhang says. 鈥淭he scary part is that people don鈥檛 know where the bottom is.鈥�
Since last July millions of ordinary investors piled into the market as the Shanghai Composite Index rose more than 150 percent.
To be sure, stock markets are still up about 80 percent over the last year. But many small investors caught on late and figured that prices would climb indefinitely. They bought shares they couldn鈥檛 afford with credit from brokers. The rout has left them not only with shares worth less than they paid, but also with loans they have to pay back.
Zhang is no different. He borrowed $60,000 in March to trade stocks, unaware that he was buying into a bubble.
鈥淭he expectation seems to have grown over the years that the government will make sure things don鈥檛 fall too far, too fast,鈥� says William Kirby, a Chinese studies professor at Harvard University. 鈥淭here鈥檚 now a palpable sense of not only investor panic but also government panic that doesn鈥檛 give people a great deal of confidence.鈥�
Individual Chinese make up more than 99 percent of China's stock investors and account for roughly 10 percent of daily trading volume. For many of them, the market is the best place to gamble outside of Macau, a casino enclave in southern China.聽
鈥淭he Chinese stock market is a casino,鈥� says Hu Xingdou, an economics professor at the Beijing Institute of Technology. 鈥淲hether you make money or not is not dependent on value investing but on speculation and how you handle speculation.鈥�
The Shanghai Composite is down 32 percent from its June 12 peak. The smaller Shenzhen Composite Index has lost 40 percent.
Waiting for rainbows
The ruling Communist Party is scrambling to avoid a deeper crash and the potential social unrest that could come with it. Regaining investors鈥� confidence is among its top priorities.
The People's Daily, the party鈥檚 mouthpiece, struck a reassuring tone in an editorial on Monday. "Rainbows always appear after the rains," it declared.
鈥淚t鈥檚 clear that the central government is worried,鈥� says Prof. Kirby. 鈥淭he sense that the government can鈥檛 deal with it would probably worry a small investor the most.鈥�
Deng Ge, a spokesman for the China Securities Regulatory Commission, warned of panic and "irrational selloffs"聽in a statement聽released Wednesday. State intervention includes cutting interest rates, suspending new stock listings, and enlisting brokerages to buy massive amounts of shares. Yet the latest round of government-backed measures has been unable so far to restore investor confidence or stop the slide.
Investor anxiety was visible Wednesday at a brokerage house in central Beijing. Dozens of somber-faced pensioners watched share prices fall in real time on massive electronic stock boards.
鈥淭here used to be a long line of people waiting to open new accounts,鈥� says one investor, who spoke anonymously. 鈥淏ut those who took out loans and are now broke haven鈥檛 come back.鈥�
While the recent plunge has scared off investors like Zhang, others are cautiously optimistic about the government鈥檚 efforts to shore up the market.
Some are waiting for prices to rebound so they can sell; others remain committed for the long haul.聽
鈥淚 think I鈥檓 being greedy,鈥� says a young stock trader who asked to remain anonymous, 鈥渂ut I want to make more.鈥�