“I Don’t Have Faith Anymore”: Frustrated Chinese Shun Stocks For Safety Of Dollars, Gold

Back in March of last year we noted, with some incredulity, that some 30% of China’s newly-minted day traders had an elementary education or less. Even more incredible, we learned that nearly 6% of the country’s new “investor” class were illiterate.

Just days after we made that startling revelation we gave readers an idea of just how many Chinese were opening new stock trading accounts each month. In March for instance, Chinese farmers, housewives, and all manner of other amatuer traders opened enough brokerage accounts for every man woman and chile in Los Angeles.

But it gets worse. Not only were millions of semi-literate Chinese starting to trade without being able to read let alone conduct fundamental analysis, they were buying into a market gone parabolic:

Worse still, they were buying on margin – heavily:

By summer, the stage was set for a truly epic meltdown on the SHCOMP and especially on the tech-heavy Shenzhen.

Sure enough, in June, the wheels started to come off.

As we warned when the plunge began, China was facing more than a stock market selloff. Beijing had managed to give legions of day trading Chinese the idea that stocks always went up. That encouraged many people to plow their life savings into the market on margin. When the unwind began – starting with the half dozen or so backdoor margin lending channels that helped to pump an extra CNY1.5 trillion into stocks – many Chinese were confronted with the possibility that they may lose everything.

Take the case of Yang Cheng for instance, who, having piled his life savings (plus his relatives’ money) into the market thanks to encouragement from his broker, borrowed $1 million in margin and bet it all on one stock – a local mining company. When the trade blew up, he lost it all. “I don’t know what to do. I trusted the government too much. I won’t touch stocks again, I have ruined everyone in my family,” he lamented.