Retail investors lose hope as China rout intensifies
Chinese authorities may be scrambling to halt the stampede out of the country's stock market and shore up confidence, but retail investors - a group that makes up around 80 percent of the market - appear to have already lost heart in equities.
Beijing-based entrepreneur Xue Yuxi, who has been an active investor in Shanghai and Shenzhen stocks since 2010, believes there is little the government can do to turnaround sentiment at this point.
"The government wants to revive the stock market, however investors have already lost faith. Even if the market shows positive signs, it will no longer gain back much confidence and attention like before," Xue, who is in his mid-20s, told CNBC.
Panic selling in Chinese equities resumed on Wednesday, even as the government's announced new measures to soothe the market - including easing rules for insurers to invest in blue-chips stocks - before trading opened.
The benchmark Shanghai Composite (Shanghai Stock Exchange: .SSEC) plummeted as much as 8 percent, sliding further into bear market territory. The index is down over 30 percent since hitting a seven-year peak of 5,166.35 on June 12.
Responding to the market's wild swings, Xue said, "I feel numb. It has become a norm for me. "
He is one of many China's 90 million-plus individual investors disillusioned with the country's stock market. According to a survey by the China Household Finance Survey Center, a rising number of mainland investors are preparing to pare back their equity investments.
Almost one third, or 32 percent, of the 28,140 respondents said they planned to reduce holdings in the country's stock markets in the coming quarter. Among them, 4.8 percent indicated they would divert their investments into the property sector, compared to 2.3 percent when the survey was last conducted three months ago.
Only 12.3 percent of the respondents said they would increase their share investments, while the remaining 56.2 percent prefer to maintain the status quo. The quarterly survey was conducted between June 15 and July 2.
Observers at a Beijing brokerage this morning reported a packed trading hall, with retail investors angry, fearful and losing faith in the governments polices. The term "Plunge in Shanghai Composite" made it to the "Top 50 hottest search topics" on China's Twitter-like platform Weibo, ranking in 4th place early Wednesday.
One particular market development that has exasperated investors is the mass trading halt that began earlier this week.
More than 200 Chinese companies halted trading in their shares since the close of trading on 6 July, essentially locking up investors' cash in suspended stocks.
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"A lot of investors have money tied up in these shares. There's deep unease because now they don't have access to their money. This is like exactly what Greek banks are doing by limiting the amount of cash depositors can withdraw every day," said Shaun Rein, founder and managing director of the China Market Research.
"This is the fastest way to destroy credibility in the financial system. Regulators ought to be fired for causing this much panic," he added.
Permitting hundreds of companies to suspend trading had magnified selling in quality stocks as mutual funds scrambled to liquidate positions to meet redemption claims, said Hao Hong, managing director of research and chief strategist at Bank of Communications International.
"The situation is getting into a negative feedback loop," he said. "People are selling everything they can, anything that has liquidity. They are afraid later on they won't be able to get buying orders in the market."
With market in meltdown mode, it would take a lot to change the perception of investors, said Hong.
"Chinese authorities need a concrete, step-by-step market rescue plan. At the moment, they are changing the rules as the play the game," he added. "If I was in the market, I wouldn't know what new rules they are going to introduce - they must provide an open, transparent and fair trading environment for price discovery."
Rein agreed there is little that could be done to revive confidence at the moment.
"There's a bit of shell shock," he said, adding that wealthier investors that have managed to exit the market were likely to park their cash in real estate in first-tier cities amid a lack of options.
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