The Problem With China's Stock Market: Retail Investors

China's stock market is dominated by retail investors and Chinese financial institutions live and die by the retail investor. Aside from brokers who favor retail investors, institutions that would normally focus on long-term holdings behave more like retail investors since there's lots of money to be made by professional trading in a market filled with amateurs.

The second line is the "national team" at 6.1 percent of the market, dwarfed by the 50.4 percent held by retail investors.

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"For the broker, the retail investor is our livelihood, contributing more than 80% of transactions, not institutions." Galaxy Securities chief economist, recently said in a Peking University HSBC Finance Forum.

Retail and institutional investors, the biggest difference is the level of professional research, rational or not the operation, risk control ability of strength. Many people cited the experience of the US stock market showed retail absolute body prone capital market turmoil, while institutional investors can be more committed to the long-term value investing.

In fact, the "retail-oriented institution" was mentioned as early as 2012, but after the 2015 stock market crash plunged in mid-June, the phenomenon increasingly being taken seriously.

In November 2015, before the People's Bank of China Deputy Governor Wu Xiaoling public its research on stock market crash to the community, and he stressed that China's stock market has a feature not available in other countries, is the "retail-oriented institution." Wu Xiaoling said that compared with foreign mature markets, Chinese institutional investors accounting for the low, investors structure is irrational, retail tendency serious, chase sell, leading to excessive speculation, but also one of the causes of the crash.

"When the retail forces are relatively strong the institutional investors find it difficult to stick to value investment philosophy." Wu said.

Recently CEIBS Dean Ding Yuan in Phoenix FINANCE Lujiazui breakfast meeting pointed out that China's institutional and retail investors to do the same thing, go to work every day, see the newspaper headlines today and then decide investment strategy.
Along with getting rid of overcapacity, China also wants to get rid of this "retail effect."
Liu Shiyu Commission Chairman during the two sessions in 2016 said: "The single structure from the perspective of investors, small investors we are overwhelmingly the main market system, the next few years, can be expected, the main structure of our investment will not occur fundamental change. "That is," to retail-oriented "is not achieved overnight.

"The US stock market has experienced 200 years of development, mainly from retail investors to institutional investors to the main market is a process of evolution." Shanghai Advanced Institute of Finance vice president of Shanghai Jiaotong University Junin recently told reporters.

...In addition, the Chinese fund management fee is higher, the higher the cost of retail investment funds, is also a reason for individual investors are reluctant to go through institutional investors. According to 2014 data, the average annual cost of Chinese retail investment fund is 3.5% to 4%, which is seventy to eighty percent higher than the international level of 1.9% to 2%, compared with the same period is is almost double the costs in the United States.
A case in point: Large shareholders selling spree spooks retail investors
In the first seven trading days this month, large shareholders sold 543 million shares worth 14.02 billion yuan ($2.13 billion) in various companies, according to the China Securities Journal.

This almost matched similar selling through all of May, which saw big shareholders' sales of 435 million shares worth 14.43 billion yuan.

Each large shareholder holds more than five percent in a company's stock.

According to the Journal, 45 companies, through 52 filings, disclosed large shareholders' plans to sell 1.216 billion shares worth 29.14 billion yuan or $4.43 billion.
also see Sex Tape Sends Furniture Stock Limit Up and Retail Investors Take Cue From TV Show

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