22 October 2016
Xinhua finds that almost a third of college students it surveyed are trading stocks. Photo: Xinhua
Xinhua finds that almost a third of college students it surveyed are trading stocks. Photo: Xinhua

Why China’s bull market would be different this time

I’d like to talk about the Chinese shares’ astounding V-shaped rebound last week as well as a Xinhua report that a third of mainland college students are now trying their luck in the stock market.

How are these two things connected? The answer lies in the smartphone.

An old friend of mine, a veteran investor with decades of experience in local, US and mainland markets, told me he could only scratch his head as the market’s volatility on June 4 was something he had never seen before.

Chinese shares slumped 5 percent by midday but suddenly staged a sharp recovery to end 0.8 percent higher.

My observation is that if the process occurred over a period of two weeks, such movements were nothing unusual but typical corrections during a bull run. The question is how did all these occur within just a single day?

The ongoing stock bonanza is the first bull market since the proliferation of smartphones in China. The biggest difference such mobile devices bring is speed.

Traditionally, the Chinese stock market is driven by retail speculators (mainly dama, or middle-aged women) but this time the rally has drawn in virtually everyone with money to invest. Their common mindset is to reap some easy gains.

In the past, you probably wouldn’t be affected too much by the prevailing market sentiment if you chose not to follow financial news.

But now we receive all sorts of information passively and automatically, from chatting on instant messaging platforms like WhatsApp and WeChat, or from the pop-up notifications of various news apps.

With just a few clicks, mainlanders can open a stock account and trade shares on mobile devices as easy as eating pie. This easy access is bringing in lots of new investors who tend to buy and sell more frequently — and irrationally.

That’s why traditional technical analysis may no longer apply, or at least some modifications would be needed.

Things are happening too fast; corrections and rebounds that used to take weeks can now be realized within just a day or two.

In the past, a bull market lasted at least three years. In the era of smartphones, the life of a bull run could be much shorter.

When transactions soar in the blink of an eye, the winners can only be bourse operators like the Hong Kong Exchanges and Clearing (0388.HK).

Using smartphones for trading is common among college students, who, according to a Xinhua survey, rely mainly on hearsay and rumors when making their stock punting decisions.

They also put their faith in Beijing. “The government won’t just sit idly by and watch the market collapse if there is a downturn,” they assure themselves.

The articles first appeared in the Hong Kong Economic Journal on June 5.

Translation by Frank Chen

[Chinese version 中文版]

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Young investors in the mainland use mobile devices for quicker and more frequent transactions. Photo:

Hong Kong Economic Journal columnist

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