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Trapped in the market, China’s retail investors plot their escape with government money

Chinese stocks more than doubled in the six months to May before crashing in June by more than a third, prompting a flurry of government inspired measures, including share buying, to stabilize prices. That calmed markets for most of July, before a sudden drop of more than 8 per cent on Monday - the biggest one-day fall since 2007.

SHANGHAI – Mrs. Zhu is only the type of investor china government should worry about as it attempts to engineer a turnaround within the country\’s stock markets, whose massive swings have heightened fears for that country\’s financial health.

China stocks seen dropping another 14% as market mirrors U.S. crash of 1929

Associated Press
Chinese stocks will decline by an additional 14 percent over the next 3 weeks as the market demonstrates a trading pattern that mirrors the U.S. crash in 1929, based on Tom DeMark.

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One of countless retail investors trapped by the market crash in June who prefer to hold losing positions rather than take a loss, Zhu is simply waiting for indexes to increase so she will sell.

\”I will sell my shares tomorrow if there is a chance,\” said the government clerk, who almost hit the sell button a week ago after markets had recovered somewhat from June\’s slump. But because she was still being set to consider a loss, she held on.

\”I am pretty sure that if the federal government does not come to rescue us, the situation will get much worse,\” she said.

Zhu\’s way of thinking is so common there a Chinese phrase for this. \”Tao lao\” once meant being captured with a lasso, but is now most commonly accustomed to mean \”trapped within the stock market,\” which means an investor cannot sell out of a losing position.

I will sell my shares tomorrow if there is a chance

The logic can also be the opposite of the items wealth managers typically advise; better to take a loss and move the money into something likely to produce stronger returns.

This highlights the risk Beijing faces in sustaining an industry turnaround. Every time the government succeeds in pushing up share prices, a military of retail investors begin to sell in their break even point, immediately knocking back market confidence.

Given that retail investors do an estimated 80 per cent of trades, which means the government could face an extended, hard grind before it can stabilize markets.

Chinese stocks more than doubled in the six months to May before crashing in June by greater than a third, prompting a flurry of presidency inspired measures, including share buying, to stabilize prices. That calmed markets for many of July, before an abrupt drop in excess of 8 percent on Monday – the biggest one-day fall since 2007.

\”Monday\’s plunge showed china authorities that even governmental measures have their limits. It\’s anybody\’s you know what else they are able to do to shore luxury sentiment,\” said Bernard Aw, a market strategist at financial spreadbetting company IG.

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