Small Investors in China Fear Stock Market Instability

Yang Lihua, a newspaper editor in Shanghai, was among the millions of small investors in China that the government encouraged to join the stock market last year. However, after prices collapsed in June, Yang sold his stocks and promised never to return again.

Last November, Yang was persuaded back in after the multi-billion dollar intervention of the government stabilized the prices. Then on Monday, the Shanghai Composite Index began 2016 by plunging by almost 7 percent. Yang, who lost a total of $55,000, said, “I don’t want to invest anymore. This is just too  miserable. It hurts, emotionally, a lot.”

Small Investors Swears off Stocks

Affected by market instability, small investors from China are now searing off stocks. This sets back the hopes of the communist rulers in promoting widespread stock ownership, which would help their financial markets propel economic reforms.

According to Guo Yanhong, Founder Securities’ market strategist, although there was a rebound in the prices from the August lows, there is no new money flowing into the stocks from small investors.

“They have either no more money to invest or they just don’t want to invest anymore,” says Guo.

The Chinese stock boom and disastrous bust in 2015 made the public distrust financial market along with a bill the Communist Party is yet to disclose for its rescue. The Shanghai index closed up 9.5 percent for the year 2015, compared to the 0.7% loss for Standard & Poor’s 500 Index of Wall Street. But many beginners who bought stocks before the peak were left with shares that are valued less than the actual cost.

A bank employee in Beijing named Yin Kai lost about 20% of the money he invested which was $15,000. “I feel sort of depressed to talk about this, because I’m afraid I am losing almost all my recent salary to the stock market,” he said.

What to Expect

Several financial analysts are expecting more selling after Friday, when the 6-month-hold ban on sales by those who own over 5% of the company is set to expire. Beijing actually keeps their financial system sealed from global capital outflows. However, the changes in the Chinese stock prices had affected other countries. The decline on Monday triggered a Wall Street Selloff, thereby decreasing the Dow Jones industrial average by 5.1%.

Chinese leaders are looking to raise money to pay their debts to state companies. As part of their efforts, they are hoping to transform coddled state industries to for-profit companies with shareholders outside to make them more efficient and competitive.

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