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 Unlike Western markets where institutional investors dominate,
individuals account for 80 percent of transactions on Chinese
exchanges. Nearly 100 million people have trading accounts.
Their enthusiasm for stocks drove China's main indexes to record
highs in the first half of 2015, but after enduring a summer bust
that saw prices plunge around 40 percent, the January sell-off has
been the final straw for many.
"I just have a small amount of money in the stock market. I had
planned to sell when indexes got a little bit higher, but soon it
dropped to this situation," said Zhou Junan, a 22-year-old retail
investor in Guangdong.
"I don't have faith in the stock market any more. I think it's
better to buy dollars."
Weekly data from the Shanghai Stock Exchange shows money shifting
into exchange traded funds (ETFs) tracking bonds, gold and money
markets at the start of January.
Funds that provide a vehicle for Chinese individuals to invest in
overseas stocks and bonds through the Qualified Domestic
Institutional Investor (QDII) scheme were also popular, continuing a
trend that began late last year.
On Thursday, the official Securities Times newspaper reported that
10 mutual funds under QDII had suspended or restricted taking
subscriptions after strong demand led to quota shortages. The
measures followed a nearly 10 percent jump in assets of such funds
in December alone.
"IN A MESS"
Alongside the renewed slide in stocks, ordinary Chinese investors
have been shaken by last week's acceleration in the decline of the
yuan, which has fallen nearly 5 percent since August.
"The stock market is in a mess," said a 48-year-old woman from
Kunshan, a city near Shanghai, working in the accounting department
of a bank, who said she had bought 500,000 yuan ($76,000) worth of
U.S. currency. "Dollar is far less risky."
That has also fueled demand for gold.
"Except for gold, all other assets are just bubbles to me," said a
24-year-old female investor in Beijing. "I guess I am a pessimist.
If there are really some global conflicts, even dollars and bonds
could not buy a meal."
In just seven trading days at the start of this year, assets under
management at HuaAn Gold ETF, China's biggest gold ETF, jumped 8
percent, after doubling during the previous six months.
"We notice a rise in gold investment whenever there's concern over
yuan depreciation," said Richard Xu, the fund's manager. "Buying
gold also helps investors avoid risks in equities. It serves double
purposes."
SELLING UP
A number of retail investors who spoke to Reuters were also
switching money out of stocks and into wealth management products (WMPs)
and principal-protected funds.
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"I have bought different kinds of WMPs from banks. The majority of
them are backed by bonds, which are less risky," said a 50-year-old
woman surnamed Wang, from Guangzhou, who said she lost 30 percent of
her stock market investment in the summer meltdown before selling
out in August.
Capturing such a trend, latest data from the Asset Management
Association of China showed that both bond and money market funds
nearly doubled in size as of end-December from end-June, while
equity funds tumbled almost 90 percent in assets under management
during the same period.
China's banking regulator and main bond clearing house have recently
moved to reduce the appeal of high-yielding WMPs relative to
equities, asking commercial banks to reduce rates offered on such
products.
Some retail investors said they were giving up on making a return on
their savings altogether, focusing instead on Chinese New Year
celebrations next month, also known as the Spring Festival.
"I don't have confidence in China's stock market anymore," said Ivy
Li, from Shenzhen, who had invested 100,000 yuan in stocks but sold
of all her holdings on Tuesday.
"I don't plan to invest in any other assets either. I am planning to
spend the money perhaps on traveling around the Spring Festival. I
think China's economy will not be so good in 2016."
A few optimists remained convinced the market would eventually turn
around after the latest bout of turbulence.
"I have pulled out all my money from the stock market, but I'm not
intending to use that to buy WMPs," said Wen Zhihong, a 50-year-old
employee at a university from Chengdu. "I'm still waiting for
another chance to get back into the stock market." ($1=6.57 yuan)
(Reporting by Samuel Shen, Kazunori Takada and Shanghai newsroom;
Writing by Alex Richardson; Editing by Neil Fullick)
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