Friday, May 09, 2008

Chinese get a taste of investing's downside


By Ariana Eunjung Cha
The Washington Post

SHANGHAI, China — When emergency workers found Wang sprawled unconscious after having downed two bags of insecticide, he was still clutching the PDA he had been using to check stock prices. Like a number of other small investors in China, Wang had bet — and lost — his life savings, about $15,000, on the Chinese stock market. The propaganda office and doctors at the hospital where he was treated said the 36-year-old factory worker had been preparing to get married and that he had hoped to use the money to buy an apartment for his fiancée.

Wang's attempted suicide and those of other investors are a heartbreaking consequence of China's great experiment in capitalism. In February, Li, a 25-year-old engineer, jumped from the seventh floor of the building where he worked in the city of Chengdu. His company said he had lost a huge amount on the stock market. On March 30, a 39-year-old former ice-cream- shop owner, also named Li, leaped to his death from his apartment building in the inland province of Shandong after losing a third of the $4,500 he had invested.

As China's stock markets crashed over the past six months, the Communist government reacted in a way most consumer investors like Wang did not anticipate: It watched from the sidelines. It wasn't until last week, after the Shanghai benchmark index's fall to a symbolic milestone, below 50 percent of its peak in October, that Beijing finally stepped in. Its announcements that it would slash a tax on stock transactions and control volatility by requiring some big block trades to take place off the regular stock market, pushed the market up 14 percent. It has fallen again since then, however. But given that the Chinese government has the power and money to do much more, some say the fact that its help arrived so late and is so limited means it is sending a message to shareholders that they should no longer expect a government bailout in such situations.

The former shop owner's sister, Li Chunyan, 34, said she understands that those who lost everything have only themselves to blame for risking so much. But because the stock market is "damaging common people's lives this much, there should be policies" to help them. She said even the U.S. government is doing more to help its investors: "I heard about the U.S. lowering interest rates to save the market," she said. "Well, different countries are different."

In online bulletin-board postings, small-time retail investors — who, unlike in U.S. markets, make up the vast majority of those who hold money in China's exchanges — have vented their anger at the government. "China's stock market is piled up with investors' tears and blood," wrote one shareholder.

Institutional investors, fund managers and analysts who follow the Chinese stock markets are less sympathetic, saying that the suffering of consumers who lost money is a necessary step on the road to capitalism.

"You lose money, you jump out the window, too bad. It's your problem," said Vincent Chan, head of China research for Credit Suisse. "For any market to grow, this is something the government should realize: At the end of the day, it's the investors who bear the responsibility of the investment, not other people."

The nose-dive of the Shanghai stock market and its sister exchange in the southern city of Shenzhen has been humbling for Chinese investors who had once believed the only direction share prices could go was up.

Analysts say they were overdue for a correction. Despite weak earnings by many companies and rampant corruption, the Shanghai composite index quadrupled in value from 2002 to 2007.

Briefly in November, PetroChina became the world's first $1 trillion company by some measures of its market value. But by the end of April, shares of PetroChina had plummeted to below its IPO price for the first time.

Andy Xie, a former chief economist for Morgan Stanley Asia Pacific and now an independent analyst, said the challenge for the Chinese public is that "generally speaking, retail investors bought stocks at a high point. They listened to their relatives, friends and heard propaganda. "When the stocks fall, they are unwilling to sell off and they sit there waiting for the government to save the markets," he said. "This is not rational."

Psychologists across the country say that in recent months they have seen more patients seeking treatment for addiction to gambling.

Some investors like Ma Guocheng, 26 and an office worker, say they have learned their lessons from the recent stock-market plunge. In April and May 2007, Ma invested some 270,000 yuan — about $38,600 at today's exchange rate — in stocks. By November, those shares were valued at 440,000. He thought about selling, but then he thought they would climb even higher. Now his holdings are worth 50,000, about $7,000. "I was greedy," Ma admitted. As a consequence, "I lost more than 80 percent of my total investment."

Comments: Thanks to Moolah who had featured the above news article. Somehow, it shows that the majority of Chinese are just dipping their toes in stocks for the first time over the last few years. You need to go on a bit longer so that people see stocks investing in the proper light. Already I think the Chinese government has been extraordinarily "kind" to individual investors - at least margin financing is almost non-existent in China. If it was you can probably quadruple the suicides due to the loss of savings.

For Malaysians, most have been through at least a couple of devastating bear markets (no, not the recent 1,500 to 1,150: that's not scary enough). The survivors would learn that ultimately each is responsible for their own actions and decisions. Nobody takes a cut from your winnings, so no one should share your losses. My favourite saying about the stock market: The market does not owe you a living, it is not there to make you rich but it can make you very poor.

Asians in general tend to bitch more when they face losses. Tung Kin Hwa took the brunt from HK people. Somehow, we never really saw similar "reactions" in USA when the Dow collapsed in late 1920s, I wonder why. People did jump off buildings but there were not a lot of bitching. Things happen and if you were caught off-guard, just damn your luck. People have to TAKE PERSONAL RESPONSIBILITY more, not just your investing decisions but in most things in life. The BLAME SOMEONE ELSE trend has taken a remarkable growth passage over the last decade - its always somebody's fault, never your own. Don't play the VICTIM, its stupid and immature. More self-introspection please everyone.

While it is sad that people commit suicides owing to market losses, people around should do their bit to encourage, educate and calm those around them who are facing "difficulties". That's as much as we can do.

p/s photo: Jolin Tsai


5 comments:

Tony said...

The Chinese love to gamble. I frequently see large numbers of Mainlanders throw bets of 10k at the Baccarat tables at Wynns and Venetian Macau. And thats not the high roller tables. I once saw a lady in PAJAMAS and a guy in muddy Phua Choo Kang Wellies at a smaller casino.
The stock market is just another casino to them.

John Lim said...

All I can say these people generally have very low EQ (Emotion Quotient). Simply jump into the stock market, not surprise they also simply jump out from any building.

Stock market is a good place to test your patient, skill, knowledge...etc to make money. That's how Warren Buffet become so rich from the stock market. Only these people make the stock market name bad and start blaming others.

Unlike in those days, information is easily available these days. Do your research before invest. Mainlanders, you still have a long way to go....

ccdev said...

nice one about personal responsibility. always easier to blame someone else for shit "luck".

solomon said...

Blame them on your own greed. One tend to lose their risk calculation when attractive returns was shown.

Similarly, a zero fare / free gifts could potentially attract a lot of people, esp Malaysian. Stock mkt work on the similar analogy except with some cooked story.

Whatever it is, do not affect the people surrounding you.

AQW said...

Pls also note that some retailers are under great pressure when the stock prices come down because they have BORROWED these funds from LOAN SHARKS / PAWN SHOPS pledging saying thier cars, houses etc (whatever that is tangible). These loans are on 14/30days roll...

Hence the added pressure + fear from the lenders to pay up.

The Govt should introduce margin leading for equities to lighten their plight.