Stock market in China

Today I would like to share some of my personal opinions and views about the Chinese stock market. I need to make a disclosure first that I have never invested in any stock in mainland China, so I do not have any experience in the Chinese stock market and my opinions and views purely come from my observations.

I think that Leshi is a quite classic case for the Chinese stock. I am not here to tell you the story about Leshi, since you can easily find the story online. I never think that Leshi's stock price can rise at any point, and I will not be surprised if it files its bankruptcy paper. However, such a stock rose in its stock price because many buyers believed there would be a miracle to bounce back from the bottom. When Leshi's shares were reopened for traders to trade early this month, the number of shareholders increase by over 80%, this shows the number of retailer investors definitely increases. This is one feature of the Chinese market, the retailer investors are an important force in the market. Comparing with institutional investors, retailer investors are poorly informed and could be seen as noise traders. Sometimes they even trade based on techniques, rumors (they call it as "inside information") and other non-fundamental things. Some of them are retired, so they can spend more time on trading, this will increase the irrational activities in the market. This could create abnormal bubbles and volatilities in the Chinese stock price.

In addition, there are many stock market commenters who seem to be able to answer questions for each specific stock. This seems really amazing; however, it is impossible for them to provide credible information about each specific stock. For an experienced asset manager, they often handle assets of around twenty to thirty companies; these commenters generally provide their conclusions without reasons and many of they do not publish their portfolios like many Westerners do, so retailer traders do not know how good they are, but some retailer traders do follow their advice. Furthermore, in China, there is a phenomena that only people themselves can lose their own money in the stock market and when they seek for the help of the financial institutions, they want guaranteed returns rather than risky returns.

Due to regulation, traders cannot short stocks and there are no options either. Under such circumstance, the market is more biased towards the long side rather than the short side, mispricing especially overpricing is more likely to happen in the market.

To conclude, the Chinese stock market gives me an impression of high volatility and too much noise, this impression actually stops me from entering the Chinese stock market.