XM does not provide services to residents of the United States of America.

Small investors are souring on China's recovery



<html xmlns="http://www.w3.org/1999/xhtml"><head><title>ANALYSIS-Small investors are souring on China's recovery</title></head><body>

Mainland stockmarkets handing back post-pandemic gains

Small investors play outsized role, say they are staying out

Deposits swell in flight to safety

By Jason Xue and Tom Westbrook

SHANGHAI/SINGAPORE, May 30 (Reuters) -The last great hope for China's faltering post-pandemic rally is fading as the nation's legion of small-time investors turns bearish on equities to double down instead on safer assets amid a stuttering economic recovery.

Brokers and money managers had expected billions of yuan in excess savings would find their way to the stockmarket this year as the economy gathered pace and enough uncertainty remained over real estate to leave equities the only game in town.

Yet just as foreign cash has failed to materialise in China's stockmarket, nervous households are also turning their backs to pile into bonds and deposits - leaving equity markets adrift.

After rallying 20% from October to January, Chinese blue chips .CSI300 are handing back gains and are down 1% year-to-date. The Hang Seng .HSI is at 2023 lows, and sovereign bond yields are falling 0#CNBMK=. The easiest trade of the year is fizzling, and the lost momentum is keeping investors' money out.

"I am quite disappointed," said Eric Yu, a programmer in his 30s in Shanghai who's been investing for around three years.

"I will not put any more money into stocks until all my losses are recovered," he said. Rather, spooked by the spectre of tech layoffs and youth unemployment, he has been putting some half of his monthly income into wealth and deposit products.

"Safety is more important at this time ... I don't want to lose my principal."

Interviews with a dozen more small investors showed the sentiment to be reasonably widespread.

China's small investors are also such a large force - accounting for some 60% of turnover, according to China Securities Regulatory Commission Chairman Yi Huiman, compared with a JPMorgan estimate of less than 25% in the United States - that their lack of interest shows up in market data.

China's securities margin trading balance, a measure of risk appetite, is hovering around one-month lows. Turnover in the A-share market is at the lowest level since early March.

Brokerage account creation, while volatile, likewise dropped off in April after promising momentum in February and March, China Securities Depository and Clearing data showed. Mutual fund launches, a proxy for investor interest, also fell away.

The broad Shanghai Composite .SSEC trades where it did early in 2022.

"It is as if stocks are losing faith in the China recovery story," said Grow Investment Group chief economist Hong Hao. Unusually, he noted, stocks have spilt from a years-long correlation with deposits and liquidity.


NOTHING BUT WAIT

Investor enthusiasm has ebbed with softening economic indicators and a global backdrop of rising political tension and falling growth.

China's April industrial output and retail sales growth undershot forecasts as the recovery turned wobbly. Loans have been sharply and unexpectedly falling, while Western efforts to reduce manufacturing reliance on China have gathered steam.

All of which has domestic investors saying they are too nervous to move much beyond deposits, which central bank data shows are swelling even faster than at the height of the pandemic a year ago.

"It's quite hard to grasp investment opportunities this year as themes rotate so fast," said one such investor, Wang Zaizheng. "I have turned more cautious...sentiment is weak and there are also policy and geopolitical risks."

To be sure, not every sign is negative and some see local investors' return as a big boost that is coming eventually.

"Some market players estimate that 10% of these excessive savings could go into investment in the asset market. That would be around 800 billion yuan," said Chi Lo, senior investment strategist at BNP Paribas Asset Management in Hong Kong.

Hayden Briscoe, Asia-Pacific head of multi-asset management at UBS Asset Management, says such investors will drive the market higher and pointed to a recent expansion in non-bank lending as a positive early sign of cash beginning to flow in the economy.

"Money's starting to get back out," he said.

Yet, so far the weight of it is on the sidelines. Even bright spots such as the outperforming state-owned sector, are more reflective of bond-like dividends than risk appetite and outside of the frothy AI sector, attractive returns aren't there.

"Now my stock portfolio books a loss of about 90%," said Meng, a Shanghai local in his 40s who gave only his surname.

He previously used to eagerly subscribe to new listings, hoping for a first-day price surge.

"I can do nothing but wait 'till it turns black."

($1 = 6.9121 Chinese yuan renminbi)


China's massive savings pool https://tmsnrt.rs/42aCy6f


Reporting by Jason Xue and Winni Zhou in Shanghai and Tom Westbrook in Singapore.
Editing by Shri Navaratnam

</body></html>

Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.