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Small Investors Remain Cautious in Wake of Market Meltdown

By Chen Na and Qin Jie

(Beijing) — The percentage of retail investors in China’s stock markets declined slightly in 2016, as mom-and-pop investors remained gun-shy after the market meltdown in the summer of 2015.

Some 77% of all of China’s stock investors in 2016 had no more than 500,000 yuan ($72,500) in their trading accounts, a drop of 7.4 percentage points from 2015, according to a survey by the Shenzhen Stock Exchange.

Gu Yongtao, an analyst at Cinda Securities, attributed the change to investors feeling they needed more sophistication to make money after the crash.

“The stock market was lackluster in 2016,” said Gu. “If retail investors didn’t have good investment strategies and only followed the crowd, it would be hard to make money in a volatile market. So eventually, some people left.”

The survey, which included investors in the Shanghai exchange as well, found 23% of investors engaged in short-term, speculative trading, a decline of 2.7 percentage points from a year earlier, which indicated investors have become “more rational,” the Shenzhen exchange said when it released the survey.

Unlike more mature markets in the U.S. and Europe, China’s stock markets are dominated by mom-and-pop investors, which can create market volatility and unpredictability.

Enthusiasm for stocks drove China’s main stock indexes to record highs in the first half of 2015. But a market rout ensued in the summer, in which the benchmark Shanghai Composite Index dropped 40% over a two-month period.

Guan Hao, a graduate student at Peking University, withdrew from the market at the beginning of the stock meltdown. But after the market stabilized in 2016, he reentered the market and invested in the CSI 300 Index, a gauge of the performance of 300 stocks traded in the Shanghai and Shenzhen stock exchanges.

“I felt that the market wouldn’t go down further in 2016, and even if it was hard to predict performances of individual stocks, the index would not drop too much and it would eventually rise above 3000,” said the 29-year-old student.

Despite the stock market rout, those who remained or reentered the market increased assets in their trading accounts by 142,000 yuan to 514,000 yuan, according to the survey.

Liu Ying, general manager of Beijing Duxin Shengfeng Asset Management Co. Ltd., said this might have to do with the government’s measures to curb an overheated housing market.

Housing prices in major cities such as Shenzhen experienced year-on-year growth of up to 60%. As the government vowed to dampen speculative home buying by restricting the number of houses a person can buy and tightening access to loans, some capital has flowed from the property sector to the stock market, he added.

The Shenzhen Stock Exchange surveyed a sample of 5,628 between the ages of 18 to 60 who invested in the stock markets in 2016.

Contact reporter Chen Na (nachen@caixin.com)

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