Chinese farmers are deserting their favourite pastime, playing mahjong and gossiping, in favour of another game where everyone can win – China’s stock market.
In an eye-opening article in China’s Sina English newspaper, residents of Nanliu, a small village of 4,300 people in China’s northwest Shaanaxi province, have downed tools in order to punt on the nation’s stock market.
According to the report traditional industries in Nanliu such as agriculture, along with recycling hair, waste, old mobile phones and TVs, have quickly been replaced as revenue streams by the villagers investing in the stock market.
One resident, Liu Lianguo, a 50-year-old investor and retiree with no prior experience in trading, plans to closely follow the stock market and run his small fertilizer business simultaneously. According to Liu, 20% of Nanliu’s residents are now actively dabbling in stocks with every investor, to this point, making a profit.
Another resident, Liu Yan, 27, the youngest investor in the village, said he entered the market last August, and his stock portfolio had doubled in value three weeks ago by the time the Shanghai Composite Index rose to above 5,000 points. He has since become a full-time investor after previously following in his father’s footsteps and running his own small recycling business.
Clearly a trend trader, when stock prices continued to rise, Liu decided that he should invest more into the market.
To give an indication of the scale of the recent rally in Chinese stocks, here’s the 12-month chart of the benchmark Shanghai Composite. It’s rallied close to 100% over the past year. At its market peak in mid-June, it had rallied more than 150% in just 12 months.
Wang Li, a 52-year old farmer, said that while she lost money in the first year she began investing, she wasn’t too perturbed as she only invested small sums and saw the daily volatility as something closer to entertainment rather than a serious money-making enterprise.
Despite viewing it as “entertainment”, Wang believes that investing in stocks is “learning through doing”, adding “Once you begin, you can’t stop it”.
Essentially she sees it as learning on the job, with your own capital.
However, not all residents expressed such a lackadaisical approach. One resident, speaking on the condition of anonymity, suggested he was too embarrassed to tell his neighbours that he had lost 200,000 yuan because he had invested all of his life savings into the market – unfortunately right at the top. He is afraid the other villagers will look down on him if they find out, and he plans to silently quit the stock market, according to report.
The story of Nanliu is likely symptomatic of other rural areas in China with residents, lured in by government encouragement and somewhat unbelievable gains, pouring vast sums of money into the nation’s stock market in order to make it rich quick.
Many, like those discussed above, have little or no experience in investment, let alone risk management.
Stories like these, despite the best efforts of the government to underpin the nation’s stock market, underlines why so many people remain skeptical that the stock market rally can continue.
Inexperienced investors, often using their life savings and some with increased leverage, are prone to irrational investment decisions.
Just as they chased the market higher over the past eight months, one can’t help but think that could equally run for the exits simultaneously should the recent declines resume.
The perceived fun-and-games in China’s stock market aren’t over yet. Not by a long shot.
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