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“When people like me look back at the stock market, it’s tears and sadness now,” said Lu Shunshi, who has been investing in the stock since it began trading in Shanghai in November 1990. “The birth of China’s stock market created an opportunity for beginners.” Investors gravitated to markets like casinos to gamble and prosper. ”
For a quarter of a century, Shanghai’s stock market rode the power of China’s economy, growing rapidly by an average of 10% every year from 1994 to 2007. After the 2008 Beijing Olympics, annual growth slowed to an average of 7.6%. Until 2022.
The largest communist country also boasts the second-largest capitalist market in the world, reaching US$13 trillion at its peak in December 2021. China was minting dollar millionaires like Blossoms Shanghai’s fictional A Bao at a rate of $1 almost every day in 2020. , before everything falls apart.
“Just in time” turns into “just in case” due to supply chain disruption due to the new coronavirus infection
“Just in time” turns into “just in case” due to supply chain disruption due to the new coronavirus infection
Frustrated investors voted with their feet and pulled record amounts of money from the stock market over the past six months, punishing China for its reluctance to roll out stimulus measures to save the economy. Shanghai-listed stocks have lost US$1.45 trillion in value since the market peak in December 2021. According to market data, China’s stock market shrank by US$4.2 trillion during the same period.
“Trading in stocks has become the biggest mistake of my life because I have been losing money for the past 20 years,” said Li Yan, an employee of a state-owned media company in Shanghai. “I had to deposit more money into my brokerage account to recoup my losses. But every attempt brought more nightmares.”
Individual investors lack the financial strength and insight of financial institution fund managers and typically rely on government incentives to trigger a bull market. The Chinese government has already launched a series of market-boosting measures, from stamp duty cuts to liquidity injections, in a bid to put an end to the sharp decline in stock prices.
As panic set in this week, China’s top leaders and policymakers, from Premier Li Qiang to central bank governor Ban Gongsheng, stepped in to stem the decline in confidence. The People’s Bank of China surprised markets this week by cutting its reserve requirement ratio, then announced it would return 1 trillion yuan ($140 billion) to commercial banks on February 5 to boost lending.
The Shanghai Stock Exchange regained $330 billion in value this week, as the market rebounded about 3% from a five-year low.
“Retail investors are eager for a rally to recoup their losses,” said Iwan Li, a fund manager at Royal Wealth Management in Shanghai. “They want the authorities to show real support to the market.”
Many Chinese retail investors want to believe that Blossoms Shanghai is alluding to a permanent upturn in the stock market and economy. The drama has already effectively boosted retail spending and tourism in Shanghai. This is a blow to Shanghai Mayor Gong Zheng, as growth rates have been weak this year as well.
Some of the world’s biggest asset managers, including Fidelity International and Franklin Templeton, are predicting a rebound in Chinese stocks. More state aid would restore economic growth and confidence, they said, and investors would soon be tempted by deeply discounted valuations.
“The price-to-earnings ratio is at a low level,” said Meng Lei, a strategist at UBS. “Most investors don’t have confidence that stock prices will rise because they don’t fully understand the economy.”
China opened its economy in 1978 by giving capitalist forces a greater role in business activities. Shanghai became the first socialist country to establish a stock exchange in November 1990. The Shenzhen Stock Exchange was established the following month. Beijing didn’t have one until September 2021.
Currently, the Shanghai Stock Exchange is the largest of the three mainland stock exchanges, with approximately 2,300 listed companies and a total market capitalization of RMB 44 trillion (US$6.2 trillion), second only to Hong Kong. larger than the US$4.6 trillion market.
Shares on the Shanghai Exchange are cheaper, with a price-to-earnings ratio of 13.4 times, compared to an average of 14.6 times over the past five years. The current multiple for the members of the MSCI China Index, which consists of more than 700 stocks listed both domestically and internationally, is 11x.
Market consultant Ying Jianzhong, who played the role of stock commentator in Blossoms Shanghai, agreed that understanding economic and company fundamentals is an essential investment priority. He says trust among investors comes from knowing what they’re interested in.
“Early on, investors like me believed in corporate earnings,” he said in an interview. “We bought bread baked by publicly traded companies in which we invested, because we believed that everything we did for the company would lead to increased profitability.”
False purchases due to excessive speculation are ruining retail investors in China’s stock market. About 92% of them suffered losses on securities transactions in 2022, according to a January 2023 survey by state broadcaster China Central Television (CCTV).
In the past, the uproar raised fears of social disorder. The late Deng Xiaoping, the supreme leader and architect of China’s capitalist reform, soothed the fears of his comrades by saying the market could be shut down if the experiment fails.
Some bold residents got rich overnight by dabbling in the first eight stocks, which soared more than 20 times within three years. However, the wild fluctuations in prices caused many unlucky investors to suffer heavy losses.
The 2015 market crash wiped out more than US$5 trillion in value between mid-June and late August. In response, the Chinese government injected approximately 1.5 trillion yuan in rescue funds to support the market. China’s securities regulators have long been tasked with stabilizing key market indicators to forestall social unrest.
Blossoms Shanghai has recreated some scenes from the early days of the market’s history. The Astor House Hotel on the Bund has a rented ballroom on the site of the original stock exchange trading floor. Also featured is a transaction counter located within the Industrial and Commercial Bank of China branch on Xiggang Road.
For some early stock investors, the scene is a rude reminder that years of hard-earned savings can evaporate within minutes of a trade.
“Traders at the time were very naive and believed that every stock was a safe bet, guaranteed to make a good profit in the end,” said the Shanghai native, who has been with the market since its inception. Genji Eko, who is involved in this, says: “In the 1990s I suffered great losses because I was aggressive.” [in chasing returns]They don’t understand the risks and fundamentals of the market. ”
Andy Rothman, a strategist at Pennsylvania-based asset management firm Matthews International, said the latest episodes and drama airing in real time in front of a global audience this week should serve as a wake-up call for policymakers in Beijing. He said that.
“The confidence of entrepreneurs and households is being undermined by economic and regulatory policies that are poorly explained and poorly implemented,” said Rothman, who previously served as a junior U.S. diplomat in China. “Confidence can be restored if the Chinese government takes steps to demonstrate that it is creating a clear and stable policy environment that supports the private sector.”
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