An investor tracks the stock markets via a smartphone app. Photo: Li Hao/GT

 

Yu Xiao, 32, flipped nervously through his smartphone on Monday morning. He breathed an instant sigh of relief as he looked at the stock market index on the financial information and service app, Tonghuashun.

The Shanghai Stock Exchange Composite Index closed 2.39 percent higher that day. "The rise met my expectations. The confidence of investors would have crumbled if the markets kept failing to rebound," said Yu, who works at a State-owned company in Beijing, also a Chinese-listed equity.

Yu is one of many individual share investors in China, whose life has been increasingly impacted by the recent volatile markets that saw share prices suffer from great losses in late June and early July.

Earlier this year, China's stock markets displayed many of the classic warning signs of a bubble.

In the second quarter of 2015, about 37 million households in China were investing in the stock market, amounting to 8.8 percent of all families, found the China Household Stock Investment Report, according to an article on financial information website cfi.cn on July 13.

The study, conducted by The Survey and Research Center for China Household Finance based at the Southwestern University of Finance and Economics, suggests that more than 73.8 percent of households profited before June 19, compared to only 40.5 percent after June 26. The number of profiting households would continue to drop as the markets adjust.

The Chinese government has taken a series of actions to prop up the stocks and counter the falling markets. Still, on social network applications Weibo and WeChat, people referred to the Chinese market neither as a bull nor a bear, but a "monkey market."

"I am an investor only buying stocks that I am familiar with. Never do I follow 'information and rumors,'" said Yu. "You can't trust anyone but the government when it comes to stocks," he said.

Senior citizens at an individuals' investor hall at a securities branch in Beijing. Photo: Li Hao/GT

 

Individual investors

Yu is a typical newbie investor in stocks. Half of his colleagues are currently investing in stocks. "We often complain if meetings are scheduled in the morning because we can't check the share prices," joked Yu.

Yu started out buying stock of 10,000 yuan ($1,611) in the company he works for last November, a period many believed showed signs of a bull market on the horizon.

He gained 50 percent profit in the following three months, and continued investing up to 100,000 yuan earlier this year. His aim was returns of 25,000 yuan in July to pay for a postgraduate course he wanted to take. In early June, he made 20,000 yuan.

When the market began to slump later that month, Yu's profit was quickly compensated. Even after the government's support measures, he still lost about 20,000 yuan.

"Realizing that I'm losing money, for a while I dared not log on to the market app to monitor the performance," said Yu.

In recent weeks, stories about China's individual investors, both winners and losers, were well documented by the media. 

Zhang Bo (pseudonym), 27, was one of the lucky ones.

According to a report on finance news portal fechina.com.cn, Zhang used to work as a ranger at the forestry bureau in a city in Sichuan Province. For his parents, the job was an "iron bowl" but he was not satisfied with the pay.

Zhang, who majored in finance at college, entered the market by investing 30,000 yuan. He borrowed the money from his parents and friends last June, when the market index lingered at 2000.

The markets allowed him returns much higher than his salary. He then quit his job and went to Chengdu, capital of Sichuan, to become a stock broker.

Using financial leveraging, he now has 2 million yuan in his account.

"As a finance graduate, I was scared by the rise in May," he said in the report. After earning more than 1 million yuan, he withdrew the money. He bought a Mercedes-Benz and worked as an Uber driver in Chengdu.

"The market changed my life path. But the stock markets won't be my entire life," he said. "I will work as a driver and invest in other financial products with higher security."

But others were not as fortunate. 

Zhang Song (pseudonym) used to work at a bank in Hangzhou, Zhejiang Province. After making a 100 percent return on his investment in April, he resigned, dreaming of establishing a private-equity firm and to be a celebrated investment manager.

In the past few months, Zhang Song managed more than 10 accounts for his clients.

But their earnings quickly evaporated amid the market turmoil. "Suddenly I wanted to go back to work," Zhang Song, born in the 1990s, was quoted as saying by Dushi Kuaibao based in Hangzhou.

"A bull market led to the explosion of people's confidence, but inner fragility exposes itself after experiencing a real drop," he said in the report.

A student surnamed Zhang at Foshan University in Guangdong Province is among China's student investors. He told the Guangzhou Daily that most of his classmates previously earned 20 percent on their investments, but now he lost 10,000 yuan of the 15,000 yuan he invested. "It's holiday now, so I can live and eat at home, otherwise I wouldn't be able to afford to eat at the canteen."

In an extreme case, a woman in Jiangxi Province was killed by her husband who couldn't bear to lend his wife any more money to invest in stocks. The woman had lost 1.8 million yuan and planned to bargain-hunt, according to the Nanchang Evening News on July 10.

Expats' reaction

The Chinese markets also attracted the attention of the expat community. In the China section of Reddit, posts about the ongoing turmoil on China's stock market triggered heated discussions.

Some gave their two cents' worth to the post "Anyone here messing around with the China stock market," a question raised two months ago when the stock market was in an upward swing.

"I noticed we can't purchase A stocks, but most of us have a close friend or significant other who'd certainly be willing to lend a hand," said "archer48."

"My wife is trying it out for a little while. Nothing big though, just to see where it goes. At least for us it is so far so good, we are still in the plus," said "flex 1986."

Some predicted the bubble would burst.

"I had a student the other day talking up the stock market. I tried to explain the risks of buying into this kind of market but he didn't want to hear it at all. He couldn't fathom how it could be a bad bet," posted "TheDark1."

Another post "What the Chinese are thinking about the stock market," elicited more than 80 comments. The post translated quotes from the Stock Market Bar of Baidu Tieba (the Chinese equivalent of Reddit).

One patriotic comment reads: "Citizens of China need to unite together! To protect the Chinese stocks is to protect yourself! Buy! The stock market crisis is going to affect everyone!"

"People think it's a fascinating story because they have never seen such volatile stock markets, except for during the global financial crisis," said Doug Young, a financial journalism professor at Fudan University School of Journalism, who runs the China Business Blog.

The blog provides information for buyers and sellers on the China stock exchange and China-related stocks.

But most foreigners are forbidden from investing in the local market, said Young. "The only two exceptions are Qualified Foreign Institutional Investors (QFII), who are all big institutional buyers, and more recently Hong Kong resident foreigners who can invest via Shanghai-Hong Kong Stock Connect."

Young said he hadn't heard of any foreigner using the stock connect to invest in China yet. "Most foreigners, or at least Westerners, are like me and see Chinese stocks as quite dangerous because they are unreasonable," said Young, "We would rather invest in stocks from more mature markets."

Taking stock

In early July, when Yu heard on television of government plans to bolster the market, he was so excited that he almost coughed up the rice he was having for dinner. "The news really calmed me down and revived my hopes," he said.

On July 14 at around 2 pm at the Beijing Dongzhimen South Street Securities Branch of China Securities, many of the city's retirees and senior citizens were sitting in the individual investors' hall, staring at the screen displaying the stock updates.

Among the investors was a woman Li Ming (pseudonym). She sat in the last row of chairs, knitting a sweater while keeping her eyes on the screen, and chatting to others. 

Li, a housewife, is a mature stock investor who entered the market 20 years ago. Having experienced the highs and lows of China's stocks, Li looked quite calm amid the latest market turmoil.

"When I began investing in 1998, I knew little about the stock market back then. I invested only a few thousand yuan. I once earned 50 percent in returns in the bull market of 2007. But after the share prices slumped, I lost 50 percent," recalled Li, referring to the last bull-turned-bear market in 2007 and 2008.

Li said at present, she only spends a small amount of money in stocks. "I am about to withdraw," she said.

Yu said he would continue investing and his plan is to "own stocks for the long term." "I think in the future, the Chinese stock market will fluctuate again. But I am sure the market supervisors and government will be more experienced in facing such problems."

"Of course, small individual investors should carefully reflect and learn from the hard lessons and return to a more rational way of investing," he said.