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Jul 27th 2015, 11:38 by S.R. & Q.Q. | SHANGHAI
THE national team was supposed to save China s stockmarket. Investors were
coming round to the view that the government had succeeded in stabilising share
prices after the central bank had pumped billions of yuan into the market in
recent weeks. Stocks were slowly clawing back territory lost in their sharp
tumble of the previous month. But on Monday the Shanghai Composite, the
country's main index, fell 8.5%, its biggest one-day fall since early 2007 (see
chart).
As with any sudden sell-off, the reasons given by analysts were varied and more
akin to guesses than solid explanations. Many pointed to a call by the
International Monetary Fund, reported by Bloomberg, a media outlet, for the
government to wind down its extraordinary measures to prop up the market. Some
said regulators had quietly resumed a crackdown on unofficial margin lending
used to buy shares. Others pointed to a drop in industrial profits in newly
published data, a reminder of China s ongoing economic slowdown; to fast-rising
pork prices, which threaten to push up Chinese inflation and lead to tighter
monetary policy; as well as the likelihood that the Federal Reserve will soon
raise interest rates, luring investment capital away from China and into
America.
There is one thing that is certain. Take a quick glance at many of the reports
about China s stockmarket bust today, and you will come away with the
impression that the primary victims are the country s retirees. The images
adorning the stories are of grey-haired punters sitting in brokerage halls,
looking on with despair at screens full of falling stock prices. On better
days, the cavalry of geriatric investors is again out in force, elated rather
than crestfallen, in media coverage of the market. Though ubiquitous (including
on the pages of The Economist), the pictures are misleading. It is not China s
grizzled stock pickers but rather their inexperienced grandchildren who have
been the much bigger force in the market s wild ride of the past year.
The generational shift in China s investor base has been steady. In 2004, 27.8%
of those with stock-trading account were under the age of 30, according to the
stockmarket regulator. This rose to 36.1% by 2013. At the start of this year,
when the stockmarket was about halfway through a bubble that saw it nearly
triple in 12 months, the balance swung even more sharply towards youth. In the
first quarter of 2015 (figures for the second quarter have not been published),
62% of a record 8m new trading accounts were opened by people born after 1980.
By contrast, just 5% were opened by those above the age of 55. Having
experienced big crashes in the past, China s pensioners were more wary about
jumping back into the fray. For the young, who have less memory of past
turbulence and more disposable income, investing in shares beckoned as a
shortcut to riches.
Assessing the market impact of this youth movement is tricky. Some, like Luo
Dunyi, a 29-year-old IT engineer, boast of having mastered the vagaries of the
market. Mr Luo put a third of his savings in stocks but sold out in early June,
avoiding the worst of the market s subsequent plunge. The key, he says, is to
have your own logic for interpreting economic data and government policies.
Otherwise, you are simply gambling. Others are less sure. Jin Ye, a
25-year-old video editor, invested 20,000 yuan ($3,200) all of her savings from
two years of work only to watch her stocks halve in value in June and July.
Before the crash, everyone was an expert, she jokes.
China s young investors are well educated. Around 81% of them hold
post-secondary degrees, 13 percentage points higher than the average investor,
according to a survey by the Shenzhen stock exchange. But that does not
necessarily make them better at picking stocks. According to the same survey,
44% of young investors said they relied on tips from friends when making
decisions about what to buy or sell, whereas just a third of other investors
trusted word of mouth.
Hong Hao, a strategist with Bank of Communications, a state-owned lender,
believes that the presence of so many first-time punters has contributed to
market volatility. Retail investors produce more than 80% of transactions in
Chinese stocks, driving daily price swings. Moreover, Mr Hong says that young
investors have been among the most aggressive in borrowing cash to buy stocks.
They have limited understanding of risks, which leads to excessive use of
leverage, he says. Technically, it should be difficult for the young to use
borrowed cash because of the high minimum wealth threshold set by the
government for margin financing. But online peer-to-peer lending and smartphone
apps have allowed investors to obtain loans with much lower amounts of
collateral. Belatedly, regulators have cracked down on these.
When the stockmarket plunged by nearly a third from the middle of June to early
July, commentators wondered whether it might spark protests. In the past
Chinese investors have taken to the streets after losing cash. Anecdotally,
though, many of China s young investors have taken their losses with
equanimity. Ms Jin, the video editor, did two things after the initial plunge.
She stopped wearing her favourite shirt because it is green (when stock prices
fall in China, their ticker colour turns green, not red, the opposite of other
countries). And then she decided to sit back and wait for her stocks to
rebound. It will be as if I left the money in my bank account. Judging by
Monday's fall, it might be there for a very long time. But Ms Jin says she is
ready to wait for years.