Based on data from China Securities Depository and Clearing Co, the country’s booming $8.1 trillion equity market has more 90 million individual investors as of mid-June. By comparison, there were just over 87.8 million Communist Party members at the end of last year, according to China’s Xinhua News Agency.
Stunningly, China saw over seven million individual equity traders buy stocks for the first time from June 1st through the 26th.
Chinese stock market boom could turn to bust
Analysts point out that millions of Chinese citizens have jumped into the stock market over the last few quarters as the Shanghai Composite Index has doubled in less than a year.
However, as of the end of trading Monday, the benchmark SCI has now dropped more than 20% from its June 12th high, leaving many new retail investors with big losses and slamming the already weak Chinese economy.
“As more people get burned, the government feels more pressure,” explained Ronald Wan, the CEO of Partners Capital International in Hong Kong. “A disorderly decline will affect stability in the Chinese economy.”
The Shanghai market has been swinging wildly over the last few weeks, taking all the stock newbies along for the scary ride. The SCI moved up 5.5% Tuesday after being down s much as 5.1% at one point during the session. Moreover, speculation has been rife that the Chinese government will soon take real steps to stop the bloodletting. When you do the math, more than $1.9 trillion in market valuation went up in smoke in the last 15 days, and analysts and individuals investors are worried that a year-long rally and surging valuations can’t be sustained much longer.
Government policy makers have urged investors to remain calm, but have taken a few steps to address the market volatility. After the huge stock market plunge last Friday, the People’s Bank of China reduced the benchmark interest rate to a record low over the weekend. The Economic Observer also published a story suggesting that the authorities were also considering a cut in the stamp tax. The Chinese finance ministry also announced this week it will permit pension funds to invest in equities.