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I disagree with this over blowing of the retail investors in china. They are not 80% of the volume, they are 80% of the traders. only 12% of the volume. China has a huge population so its easy to get a huge number of accounts. I think the news sources are really starting to mix up and twist statistics to make it sound more headline worthy.
I agree with the govt intervention is just destroying confidence and making it worse. everyday its something new, restricting short selling, forcing brokers/banks to allocate 15% of their AUM to blue chips, ETF and Futures buying. Also not to mention arbitrary trading halts that are initiated by the company being traded rather than the exchange or govt. Thats right, a company can halt its own stock if its performing too poorly.
Remember guys this is not a "free market" its a completely different animal. How the Chinese manage it and what is allowed is different. If you don't understand that and just apply things that work in the USA, its not going to work out. Right now the trades are not value or fundamentally motivated, it is politically motivated.
Heres a chart of the Shanghai composite index. Also, today's non-mainland traded contracts all up with massive short covering:
HSI - Hang Seng - HKEX
MHI - Hang Seng mini - HKEX
XINA50 - China Xinhua A50 shares index - SGX (jul to sept to show the spreads)
HHI - China H Shares future contract - HKEX
The HSI chart is also showing its big day yesterday. Lots of chatter about the inability to short the A and H shares so they hedged on the HSI.
Why did they put their live savings in the stock market?
Does China have a similar program to a 401K, where retirement funds are directed towards stocks?
My understanding of the recent bubble was that average people were trying to get rich quick, completely separate from any sort of retirement account. Obviously, these people got what they deserved because they didn't properly understand the risk.
No China does not have any sort of company sponsored 401k, IRA or any real retirement investment vehicles. Their social security pay outs are very low as well only around 1-200 USD per month. Also they do not have as good of health insurance. This is why they are very good savers and depending on their children to support them when they are old. The level of retirement tools available are extremely low.
They must self direct invest. Of course they want to get rich quick. But that is in comparison to the USA. If you consider how fast they have been getting richer in the past 15 or 20 years in perspective, it really is more normal. So yes there are going to people out there who lose everything, their house ,their car, their retirement etc.
There are a lot of components to this knock on effect from the retail trader side. The government's news media was basically saying invest in the bull market is a sure thing. Allowing for huge 10 to 1 leverage on equities. And basically taking anything as collateral not just deposited cash but also real estate and basically anything. this made everyone feel safe because it good news was coming from the top. As well as a keeping up with the Jones type thing. Imagine the nightly news every night told you how good it is to trade stocks and you see your coworkers and neighbors making money. It is something that is just not possible in the usa.
