This time last week, Chinese retail investors were feeling “invincible”.
Eight straight days of gains for mainland equities added more than $1 trillion to the market cap of the country’s stock market, and retail investors understandably thought they had the government’s blessing to push their luck. After all, state media was busy talking up a “healthy bull market“, suggesting speculation in local shares was just fine with Beijing.
“There’s no way I can lose”, a 36-year-old tech startup employee who opened her very first trading account last week told Bloomberg. “Right now, I’m feeling invincible”.
Trouble showed up the very next day, though, when China’s national pension fund and a state-backed semiconductor fund tasked with bolstering the domestic chip industry, announced divestitures, rattling sentiment.
Last Friday, shares on the mainland snapped their hot streak after the state-run Economic Times warned against “crazy cows”, with the potential to turn into wealth “meat grinders”.
Fast forward a week and Chinese equities plunged the most since mainland markets reopened after the extended Lunar New Year holiday, after mixed June activity data (and particularly a miss on retail sales) outweighed the positive vibes from a second quarter GDP beat.
The CSI 300 tumbled nearly 5%. The ChiNext fell almost 6%.
It was the third straight day of losses, and the fourth in five.
Kweichow Moutai — China’s most valuable listed company — was bludgeoned to the tune of almost 8% after state media lashed out at the liquor maker, purportedly for its products’ ubiquity in corruption scandals.
“Alcohol is meant for drinking, not for speculation or corruption”, The People’s Daily chided. The plunge wiped away $25 billion from the company’s market value, which exceeded $300 billion earlier this week.
The state criticism “affected sentiment negatively and added to reasons for profit taking after the stock’s sharp gains previously”, Capital Securities analyst Gu Xiangjun said Thursday.
Obviously, officials are keen to deflate the bubble they themselves helped create this month before it has a chance to get big enough to represent a real threat to economic stability.
And so, Chinese investors learn yet another hard lesson in reckless speculation. The market lives and dies by government decree, and it certainly appears Beijing thought better of stoking another 2015-style mania.
Coming full circle, sluggish retail sales data sounds mundane enough, but, as discussed here early Thursday, it underscored the uneven nature of China’s recovery, thereby undermining sentiment. Reports that the Trump administration is considering a sweeping travel ban on Communist Party officials probably didn’t help.
Whatever the case, the “healthy bull” did, in fact, turn into a “mad cow meat grinder” (to quote state media), and in the space of less than two weeks.
One wonders how “invincible” the country’s retail investors are feeling now.