Youthful investors blind to hard market laws Beijing

• Source: Global Times
• [23:11 January 20 2010]
• Comments

By Gary Sands

You may have seen them on the street. Elderly hordes of Chinese amassing outside the offices of securities firms, sharing their opinions on the latest financial charts being displayed inside.

I've often wandered in to get a sense of the profile and mood of the average investor, but have come away with little understanding other than that these are great places for the elderly to sit and socialize.

Western investors are endlessly entertained by the anecdotal stories circulating in the press of ayi (housekeepers) quitting their household duties to become day-traders, or of a university student going on a diet of instant noodles and steamed buns after heavy losses in the stock market.

But I often wonder how informed and sophisticated these small investors are, given that investing in the Chinese stock markets is a relatively new phenomenon.

Early this month, China's State Council gave approval "in principle" to the China Securities Regulatory Commission (CSRC) to introduce by March a stock-index futures contract based on a Shanghai-Shenzhen hybrid CSI 300.

Regulations are being loosened up, but how ready are Chinese investors for this?

A recent study by Amber Insights and Kapron Asia may help answer that question.

It sheds light on the decision-making of Chinese investors, compiled from telephone interviews with 600 active investors across the country.

For starters, the report uncovered to what extent the markets are influenced by small retail investors versus large financial institutions.

For Shanghai, retail investors constitute 57 percent of total investors, down from 95 percent just five years ago, but compared to just 20 percent in the New York Stock Exchange.

Unsurprisingly, the average age of investors in the Shanghai stock exchange is 35 years old, with over 90 percent of those surveyed less than 50 years old.

These young investors also have above average earnings (77 percent), own property (66 percent) and have mortgages (34 percent).

Contrary to what we believe, the survey reveals that the stock markets in China appear to be driven to a large extent by young, rich retail investors.