Chinese army of small investors wants to participate in GameStop mania

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Discussions of the video game retailer’s epic surge in stocks have taken over Chinese social media, and the dramatic gains from this stock and others have become the envy of young day traders nationwide. They are now asking each other to come together to emulate their American counterparts by driving up the stock prices of troubled companies.

Just as Millennials and Gen Z in the United States lamented the hedge funds and short sellers who are part of the Wall Street elite, so many small investors in China have cried foul over what they see. as an exploitation of the market by large institutions.

Mainland China’s financial markets are very different from New York’s. Short selling is highly regulated and incredibly rare, which makes it difficult Chinese investors at reproduce the American frenzy that inflated GameStop shares as a way to stick with hedge funds betting that the company’s stock would crash.

Even so, everyday investors in China have a ton of influence over market activity. There are over 177 million individual investors, or individual traders, in China. That’s 99% of the investor base, according to compiled December statistics by the China Securities Depository and Clearing Corporation. And they also have their grievances.

Mum-and-pop investors often complain that they are reaped as’ leeks’ – a common vegetable in the Chinese diet ‘- by big players who swindle them out of money they think they deserve. (The government can sometimes be the target of that anger, too, if the whole market is doing badly.)

“It’s so awesome,” wrote another Weibo user, referring to the GameStop saga. “The ‘leeks’ around the world should all unite.”

Chinese investors could in theory try to collectively drive up the price of an individual stock, then reject it before institutional investors. But it’s a tall order, given the resources and knowledge available to major stock pickers. And institutional businesses that focus on long transactions may ultimately benefit from stock spikes.

Difficult to reproduce

Dictating major market swings is “theoretically” doable for Chinese individual investors, said Kenny Tang, CEO of Royston Securities, a Hong Kong-based brokerage firm, given their familiarity with using trading forums. social networks to place bets on individual stocks.

“You can imagine that it’s not difficult for some of them to link up and have an influence on individual stocks, especially small caps,” Tang said.

China is no stranger to the volatility of the markets caused by frenzied trade. When the Nasdaq-style Star Market launched in Shanghai in 2019, local investors helped some stocks rise in value. A company’s shares climbed 400% on the first day of trading.
The Chinese government and state media are also keenly aware of how these individual investors can generate stocks. State media, for example, called on local investors to pour money into the markets last summer as the economy recovered from the coronavirus pandemic. When the rally seemed to be going too fast, some news outlets backed down a bit and encouraged more conservative exchanges.

Analysts warn, however, that coordinated trade in a country like China, where everything is highly regulated, is perilous.

“If you get the attention of regulators, it probably won’t end well for you,” said Tang, who added that people who try to organize big market swings risk being arrested if the government puts them on hold. suspects stock market manipulation.

Others, like retail investor Luke Chen, aren’t really convinced about the idea of ​​an amateur revolution in China due to the amount of professional knowledge that established investment firms hold.

“Individual investors are much less powerful than large investors in terms of size of capital, investment in knowledge – even some trading applications are exclusively better optimized for large investors,” said Chen, based in Shanghai.

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