It wasn’t just poor stock-speculating fools — or “dumb money” — that got hit by the collapse of China’s stock market earlier this year. It was actually the rich and, supposedly, sophisticated investors that took massive losses.
Heavier, in fact, than anyone else. As Macquarie explains in a note on the Chinese market:
The current media storyline is that savvy high-net-worth individuals got out at the top by selling to naïve new investors from the less affluent classes. This could be an overly simplistic analysis of the CDSCC data on the numbers of brokerage accounts as segmented by month-end balances.
In the end it comes down to leverage, which is the amount of debt you borrow to make your bets. It has the effect of amplifying gains and losses in investments.
The higher the leverage, the more you make in boom times and the more you lose when the bubble bursts. And the rich had access to a lot of debt.
Here’s the chart.
Here is the breakdown of the report, which shows just how the richest people dominate China’s stock market:
- The “super elite” retail accounts worth more than RMB100 million (£10 million) only represent a puny 0.02% of total brokerage accounts, but they hold nearly 31% of total tradable shares.
- More broadly, retail accounts worth more than RMB500,000 (£50,000) represent 76% of total tradable share value.
- Based on our estimates, this would represent about RMB14.3 trillion (£1.4 trillion) as of July, down significantly from RMB17.4 trillion (£1.7 trillion) in June and RMB 19.5 trillion (£1.9 trillion) at the peak in May.