Giving up on stocks: China's retail investors seek safety first

Thu Jan 14, 2016 5:07am EST
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By Samuel Shen and Kazunori Takada

SHANGHAI (Reuters) - As China's legions of retail investors flee the country's tumultuous equity markets, pushing stock prices down around 15 percent so far this year, money is flowing into perceived safe-haven assets such as domestic bonds, gold and the dollar.

Unlike Western markets where institutional investors dominate, individuals account for 80 percent of transactions on Chinese exchanges. Nearly 100 million people have trading accounts.

Their enthusiasm for stocks drove China's main indexes to record highs in the first half of 2015, but after enduring a summer bust that saw prices plunge around 40 percent, the January sell-off has been the final straw for many.

"I just have a small amount of money in the stock market. I had planned to sell when indexes got a little bit higher, but soon it dropped to this situation," said Zhou Junan, a 22-year-old retail investor in Guangdong.

"I don't have faith in the stock market any more. I think it's better to buy dollars."

Weekly data from the Shanghai Stock Exchange shows money shifting into exchange traded funds (ETFs) tracking bonds, gold and money markets at the start of January.

Funds that provide a vehicle for Chinese individuals to invest in overseas stocks and bonds through the Qualified Domestic Institutional Investor (QDII) scheme were also popular, continuing a trend that began late last year.

On Thursday, the official Securities Times newspaper reported that 10 mutual funds under QDII had suspended or restricted taking subscriptions after strong demand led to quota shortages. The measures followed a nearly 10 percent jump in assets of such funds in December alone.   Continued...

An investor yawns in front of an electronic board showing stock information, after the new circuit breaker mechanism suspended today's stocks trading, in Shanghai, China, January 7, 2016. REUTERS/China Daily