24 October 2016
The fifth-generation mainland investors are believed to be the main force behind the current market rally. Photo: Internet
The fifth-generation mainland investors are believed to be the main force behind the current market rally. Photo: Internet

What will be the fate of fifth-generation mainland investors?

Many foreigners are unfamiliar with the “fifth-generation” Chinese investors.

This group of investors was usually born in the 1980s and ’90s, and most of them are very aggressive and quick to react to market movements.

Some of them have reaped profits of 80-100 percent, and they are believed to be the main force behind the current market rally.

This group of investors did not suffer the market meltdowns of October 17, 2007, and October 28, 2008.

They entered the market at the bottom and have enjoyed the crazy run-up so far.

However, the bull has come along with sharp fluctuations, and they’ve already learnt quite a lot during the last couple of days.

Mainland brokerages reveal that many new investors were born in the ’80s or ’90s and are good at navigating the internet and spotting the “bull stocks” easily.

Some of them have more than doubled their investment during the recent market rally.

These investors are big fans of using mobile phones to trade stocks.

They stay away from social media groups that are dominated by seasoned investors, and they rarely visit the stock trading rooms at brokerages except to communicate with familiar investment consultants.

These fifth-generation investors usually have a better understanding of new products.

Mainland China has rolled out various innovations — like stock index futures, margin trading, Shanghai-Hong Kong Stock Connect and options on stocks — which have helped beef up the sophistication of mainland investors.

And market reforms have lured highly educated young investors, in particular those who are big fans of the internet.

These young investors are very eager to enter the market and act very swiftly and aggressively.

More sophisticated investors would put their eggs in different baskets when they invest in the equity market.

However, this group of young investors will bet on a few stocks with leverage and chase stocks at high levels.

Looking back, China’s four generations of stock investors have witnessed the development of the securities market in the country.

The stock market was set up in the early 1990s, when the first-generation stock investors were allocated stocks of which they knew very little.

That generation, mainly from state-owned enterprises, grew up during the days of the planned economy.

The second-generation stock investors were white-collar workers and bank employees who were lured into the stock market to make extra money.

And in the late ’90s, the securities industry posted explosive growth as brokerages opened offices across the country.

The mainland stock market gained a whopping 998 points between June 6, 2005, and October 16, 2007.

Mainland mutual funds embraced the golden era of an appreciating renminbi and abundant liquidity.

The equity market set a record high and drew massive numbers of investors.

The fourth-generation investors jumped onto the bandwagon in a hurry but got caught up in the meltdown of the market bubble.

It remains to be seen whether the fifth-generation investors will escape the ill fortune of their predecessors.

This article appeared in the Hong Kong Economic Journal on April 20.

Translation by Julie Zhu

[Chinese version中文版]

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Senior investment banker

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