Earlier this year the Shen family sold their apartments on the banks of the Pearl River in Guangzhou for 5 million yuan (US$800,000) and are using the money to fund a new business and invest in the stock market.
“After I get up each morning, I open my mobile phone, read the financial news and follow the prices after the market opens,” Mr. Shen said.
“Before going to sleep, I read books on the stock market. When we sold the apartment, my parents and brother strongly opposed our decision and warned us that the stock market was too dangerous.
“But so many friends and relatives have made a lot of money this year. We must take the chance.”
Tens of thousands of Chinese are making the same bet as the Shens.
The Shanghai Composite Index has doubled since January 2014 as traders borrow record amounts to invest and new clients at brokerages open accounts at an unprecedented rate.
At the Zhongshan, Guangdong province, branch of Anxin Securities, they are opening an average of 50 new accounts every day, with more than 1,000 people signed up in the last month.
“It has been like an explosion, these last two weeks,” manager Yi Xiaofeng said.
“People are investing because this bull run is led by the government,” said Yang Guo-liang, who runs a transport company in nearby Zhuhai, just across the border from Macau.
“Exports, foreign investment and domestic consumption in China are weak, so how will we achieve the 7 per cent growth target this year?
“The government has decided that the property and stock markets will make up the slack, drive the economy and create wealth for consumption.
“So it is an easy decision to buy shares if the government wants you to.”
The fever has spread to investing in the Hong Kong market as well as in Shanghai and Shenzhen.
Residents of Zhuhai, like those of Shenzhen, can travel easily to Hong Kong.
Many have opened Hong Kong dollar accounts in banks in Hong Kong, which enable them to trade stocks as easily as Hongkongers.
“We cannot access the websites of Google or most Hong Kong newspapers,” Yang said.
“But we can access financial sites and follow price movements minute by minute on our mobile or computer. We can place orders as easily as people in Hong Kong.”
There are different categories of mainland investors in the Hong Kong market.
The biggest are banks, investment companies, insurance firms, pension funds and other large institutional investors.
Next are wealthy individuals with accounts in Hong Kong who have been trading there for several years.
The underground financial system is very active, enabling people to convert large quantities of renminbi into US dollars and Hong Kong dollars for trading.
The mainland has a huge excess of money and inadequate outlets for investment. Because of this surplus, Beijing is willing to turn a blind eye to the outflow of money, especially if it is being invested in Hong Kong rather than overseas.
The new investors of the past six months can either open an account of their own in Hong Kong or invest in funds that trade the money on their behalf.
One broker in Zhuhai said that this bull market was driven less by individual investors than institutional ones.
“More and more people are entrusting their money to private and public funds and insurance companies to invest on their behalf using their specialised knowledge,” he said.
The Hong Kong market is attractive firstly because its valuations of mainland companies are lower than in Shenzhen and Shanghai and there is room for them to rise.
Second, it has strict regulations that are enforced, which makes it healthier and better run than the mainland bourses. The accounting and auditing of its firms are credible, and the issue of new stock is controlled.
“As we know, listing in the mainland requires approval, which means good guanxi with local governments and the regulator are essential. This can lead to bad practices and deals behind the curtain,” the broker said.
He said Hong Kong people should not be fearful of the “mainlandisation” of the city’s stock market through this enormous inflow of money.
“The most important thing is that the market keep in place its rules and regulations and enforce them,” he said.
“That makes it attractive for all investors. This new money will replace that lost to Hong Kong as a result of the new restrictions on individual travellers.
“Hong Kong is a blessed place.”
– Contact us at [email protected]