The Chinese army of small investors wants the GameStop mania

by

The talk of the epic growth of the video game distributor has taken over Chinese social networks, and the spectacular gains from those and other actions have become the envy of young traders in the country. They now call on each other to unite to imitate their American counterparts in raising the share prices of troubled companies.

Just as Millennials and Gen Zers in the United States have lamented hedge funds and short sellers who are part of the Wall Street elite, many small Chinese investors have lamented what they see as market exploitation by large institutions.

The financial markets in mainland China are very different from those in New York. Missing sales are extremely regulated and incredibly rare, which makes it difficult Chinese investors to reproduces the US frenzy that has accumulated GameStop shares as a way to stick it to hedge funds that looked like the company’s shares would collapse.

Even so, everyday Chinese investors have a ton of influence on market activity. There are more than 177 million retail investors or individual traders in China. This represents 99% of the investor base, according to compiled December statistics by China Securities Depository and Clearing Corporation. And they have their grievances.

Mother and pop investors often complain that they are harvested as “leeks” – a “common vegetable in the Chinese diet” – by big players cheating them out of the money they think they deserve. (The government can sometimes be the target of this anger, too, if the wider market is doing poorly.)

“It’s so wonderful,” wrote another Weibo user, referring to the GameStop saga. “The ‘leeks’ around the world should unite.”

Chinese investors could, in theory, try to collectively raise the price of an individual share and then drop it before institutional investors do so. But this is a high order, given the resources and knowledge that large shareholders have. And institutional firms that focus on long transactions may eventually benefit from share increases.

Hard to replicate

Dictating major changes in the market is “theoretically” achievable for individual Chinese investors, said Kenny Tang, CEO of Royston Securities, a Hong Kong brokerage firm, given their familiarity with using social media chat rooms to bet. on individual shares.

“You can imagine that it is not difficult for some of them to unite and have an influence on individual shares, especially small capitals,” Tang said.

China is no stranger to market volatility, driven by frantic trading. When the Nasdaq-style Star Market was launched in Shanghai in 2019, local investors helped some of the shares grow in value. The shares of a company increased by 400% on the first day of trading.
The Chinese government and state media are also highly aware of how these individual investors can conduct stocks. State media, for example, urged local investors to pour money into markets last summer as the economy recovered from the coronavirus pandemic. When the rally seemed to be moving too fast, some news appealed little and encouraged more conservative trading.

Analysts warn, however, that coordinated trading in a country like China, where everything is highly regulated, is fraught with danger.

“If you get the attention of regulators, it probably won’t end well for you,” said Tang, who added that people trying to organize large market fluctuations risk being arrested if the government suspects them of stock market manipulation.

Others, such as retail investor Luke Chen, are not really sold on the idea of ​​an amateur revolution in China because of the more professional knowledge that established investment firms have.

“Individual investors are much less strong than large investors in terms of capital size, investing knowledge – even some trading applications are optimized exclusively better for large investors,” said Chen, who is based in Shanghai.

.Source