Following Influencers in Penny Stocks: The Secret Behind the Surge in Small-Cap Stocks (AI Translation)

跟着主播炒“小票”：小盘股热涌的秘密

[para. 1] On November 25, small-cap stocks in China's A-share market remained active, with the CSI 2000 Index rising over 1.5%, contrasting with declines in the CSI 300 and SSE 50. The rally in small-cap stocks since September 24 has continued, despite some stocks being halted for investigation due to price volatility. The measures struggle to curb speculative behavior surrounding small-cap stocks.

[para. 2] Financial live streaming has gained popularity, with platforms like Douyin and Kuaishou attracting new investors, particularly "Post-95" and "Post-00" generations. Douyin influencer "Da Lan" was banned after claiming influence over small-cap stocks. The popularity wave initially appeared on WeChat Channels, then surged on platforms like Douyin and Kuaishou, indicating the rapid spread of investment trends among young audiences.

[para. 3] The recent surge in A-share market stocks like Chuanda Zhisheng and Chuanda Longmang, dubbed "Trump concept stocks," illustrates the market speculation driven by videos on TikTok. The appeal of these stocks includes symbolic meanings and merger speculations, causing significant volatile trading patterns. Individual investors, lacking financial background, contributed largely to the turnover, influenced by popular live-stream recommendations.

[para. 4] Zhang Xiaoyan from Tsinghua University stated that retail investors are easily swayed by digestible information delivered in live streams, due to behavioral biases. This leads them to make investment decisions based on emotions rather than solid financial analysis, exacerbating speculative behavior in the market.

[para. 5] Small-cap stocks, defined by market capitalization under 3 billion yuan, are prone to volatility and investor sentiment swings, often facing financial instability. The speculation surrounding these stocks has been a theme in China's market since its establishment, when market manipulators controlled stock prices, leading to a community favoring "shell resources" and speculative investments.

[para. 6] The late 2000s saw a shift to speculative focus on poorly managed or underperforming stocks, which, if restructured, could offer significant gains. As institutional investors grew stronger after 2010, retail investors' speculation continued, facilitated by social media, which allowed faster information distribution.

[para. 7] The development of short-video platforms has further modified speculation, with algorithmic recommendations intensifying the focus on rising stocks. New venues like Douyin and Kuaishou have become main channels for investors, creating a false consensus through interactions and exerting pressure on retail investors' decision times.

[para. 8] Given the long history of manipulation in China's A-share market, newer market influence cases involve digital platforms, complicating regulatory oversight. Individual investors are often caught in grey areas, lacking clear responsibility as digital media plays a more significant advisory role without overt financial transactions.

[para. 9] In the U.S., sharing personal investment views on platforms like TikTok is allowed if users clarify they are not professional advisors. Still, when offering specific advice for compensation, registration as an investment advisor with the SEC is required. The SEC focuses on preventing fraud rather than detailing specific advisory standards.

[para. 10] In contrast to China's preventative regulation approach, the U.S. punishes violations post-incident. Both have merits, but differences exist in their effectiveness. For instance, during the GameStop saga, the SEC investigated but didn't attribute social media manipulation. Figures like Keith Gill, who played significant roles during GameStop's fluctuations, successfully argued for personal initiative over manipulative intent.

[para. 11] The GameStop incident exemplifies unique market events where large retail investor activity led by influential figures caused stock volatility. Although the case drew attention, Zhu Ning commented that such extreme retail investor-driven events are less common in U.S. markets than in China's.