Cover Story: Livestreamed Stock Tips Worry Regulators as Novice Investors Rush In

The recent proliferation of livestreaming and social media platforms has brought significant changes to China's stock trading landscape. These platforms have made it easier for stockbrokers to connect with potential investors and provide trading advice. However, regulators are concerned that these platforms entice inexperienced investors, making them vulnerable to impulsive financial decisions and potentially significant losses [para. 1].

Li, an executive at a mid-sized securities firm in central China, describes the irresistible pace of the market and the transformation of the A-share ecosystem due to livestreaming. His brokerage has hired dedicated staff for livestreams, reflecting the shift away from traditional methods that required specialized education [para. 2][para. 3]. This change is partly driven by a strong rebound in China’s stock market, fueled by government stimulus since late September. This rebound led to a surge in new retail investor accounts, many created through online platforms [para. 4][para. 5][para. 6].

The Shanghai Stock Exchange reported 6.84 million new individual accounts in October 2024, with most being opened online through livestreams. A majority of these accounts were created by people born in the 1990s and 2000s [para. 6][para. 7]. These new investors tend to lack practical financial experience and rely heavily on social media for market information. Many follow advice from online influencers without understanding the financial fundamentals, driven by the fear of missing out [para. 8][para. 9][para. 10].

There have been instances of stocks surging due to mere name coincidences with popular events, illustrating the inexperienced investors' tendency to react to viral trends without substantive reasoning. Such behaviors have led to some investors taking out loans to fund their stock purchases, resulting in significant financial losses when the market turned [para. 11][para. 12].

The recent speculation frenzy has been particularly focused on small and mid-cap stocks, with indexes like CSI 1000 and CSI 2000 showing substantial gains compared to large-caps. However, this speculative behavior is often linked to insider trading and manipulation, prompting regulatory action [para. 13][para. 14][para. 15].

Yao Pei, a chief analyst at Hua Chuang Securities, noted the influence of short video platforms in feeding this speculative boom, supported by data showing a massive number of users engaging with such content daily [para. 16][para. 17]. Some prominent online influencers have even been banned for promoting specific stocks, as their activities potentially mislead the public and disrupt the market [para. 18][para. 19][para. 20].

The challenge for regulators is growing as new technology facilitates rapid dissemination of financial information, some of which might cross regulatory lines. Despite stricter scrutiny and fines on advisory firms violating rules, enforcement faces difficulties due to the complexity introduced by online activities [para. 21][para. 22][para. 23][para. 24].

Competition is increasing for traditional securities advisory firms as brokerages and fund companies begin providing their own investment advice services. The market is also seeing consolidation, with the top firms capturing most of the revenues, indicating that smaller players might phase out in the future [para. 25][para. 26][para. 27][para. 28].