Chinese Retail Investors Open Enough Brokerage Accounts In March For Every Man, Woman, and Child In LA

Tyler Durden's picture

Last week we highlighted a Bloomberg chart which showed that more than a quarter of new investors in the “self-feeding, leverage-fueled domestic frenzy” that is China’s equity market have an elementary school level education or less. Bloomberg categorized nearly 6% of new Chinese stock investors as “illiterate.” If true, we imagine this doesn’t bode particularly well for a bubble that’s been inflated on the back of massive leverage (buying on margin accounts for a fifth of daily turnover and margin debt now sits at 1% of GDP). As a reminder, here’s the graphic: 

 

Now, thanks to the China Securities Depository and Clearing Co., we get a look at just how quickly the situation is escalating. Nearly 1.7 million new stock accounts were created last week…

...marking a 49% increase from the previous week…

...which itself represented a 58% increase from the week before…

Here’s more via Bloomberg:

To get a sense of the frenzy in China’s world-beating equity market, consider this: In a two-week span last month, the rally lured 2.8 million rookie stock pickers, almost the equivalent of Chicago’s entire population.

 

The number of new equity accounts surged to a record during the two weeks ended March 27, five times the average of the past year, data from China Securities Depository and Clearing Co. showed on Tuesday. About 4 million were opened in

March, enough for every person in Los Angeles. More than two-thirds of new investors have never attended or graduated from high school, according to a survey by China’s Southwestern University of Finance and Economics.

 

Signs of inexperienced investors’ growing influence on the $6.5 trillion market have already shown up in the outperformance of China’s equivalent of penny stocks and a jump in share-price volatility to the highest level in five years. While fresh capital may feed market momentum as the government steps up efforts to support economic growth, foreign money managers have been selling shares on concern the gains are overdone.

 

“A lot of speculative money has come into the market,” Michael Wang, a strategist at hedge fund Amiya Capital LLP, said by phone from London. The rally “is not fundamentally driven. It’s much more of a flow-driven phenomenon,” he said.

*  *  *

We certainly don’t see what could go wrong here. Last month alone, a new investor base the size of Los Angeles — many of whom may be only semi-literate — piled into Chinese equities which have nearly doubled in the space of 8 months on the back of margin debt that can now be measured as a percentage of GDP and volatility is at a 5-year high. Everything should be fine. 

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Silver_K-9's picture

 apprently Chinese characters don't work here... So translate: BTFATH...

Laowei Gweilo's picture

basically maigao i guess ?? not as poetic as the acronym

though relative to the US, SSE Comp Ind was incredibly undervalued and is still rather low compared to SP so if we're talking about risk and/or insanity, this is still nothing to US tech valuations

PartysOver's picture

Holy crap, Goldman has a whole new crop of Muppets to work over.  Time to buy GS.

Apostate2's picture

Guomei suoyou de shíjian gao

ThisIsBob's picture

Obviously they don't read Zero Hedge in China, for Zero Hedge readers have known for 5 years that a crash is right around the corner.

JenkinsLane's picture

Would you like a saucer of milk with that?

old naughty's picture

meow...

and some hint when Friday (ahead of Monday) approaching would be nice tho.

RSDallas's picture

Hopefully they will be the ones to buy the US market this time!

Dragon HAwk's picture

You Fukkeee Mee Slanteyes...

Arnold's picture

You miss Petrobras yet, roundeye?

will ling's picture
will ling (not verified) Apr 1, 2015 9:03 PM

just think about it, a 1929 like crash in china being just about right time to let loose with the nukes on vlad. would take a financially prostrate middle kingdom right out of the equation.

Alberich's picture

My kingdom for a grilled-cheese-truck franchise in Guangzhou!

logicalman's picture

China has a gambling problem, I guess.

They are not alone!

 

The_Dude's picture

Come on in...the water is fine!!!

 

 

SSSHHHHHHHAAAAAARKKKKKK!!!!!!

Steaming_Wookie_Doo's picture

Dude, it's a Sharknado at this point

juicy_bananas's picture

Confucius say man who goes through airport turn style sideways is going to Bangkok.

juicy_bananas's picture

Confucius say man who goes to sleep with itchy butt wake up with stinky finger.

Bryan's picture

It's time to start a hedge fund!

jiggerjuice's picture

It's just gambling for the Chinese. Usually they have to go all the way to Macau. Now even the common village man can gamble away! Soon enough you'll see why casinos in the mainland are illegal in the first place. Zhongnanhai is allowing this, for now.

Proofreder's picture

Perhaps a regular phenomena during the evolution of any culture that turns to money as a driving force.  Now that Chinese have excess money, they are behaving as many of our grandparents did in the roaring twenties.  Mine lived in a small Minnesota farming community, yet owned stocks and had gilt-edged (worthless except as collector's items) railroad bonds and even bank bonds.

All gone, along with personal memory to remind us what did not work last time and the aftermath of a mania.  Stock market advice from a shoe-shine boy.

Perhaps a pool to pick a date for market armageddon ?  Monday after Easter sounds good to me.  Bonus points if the decline exceeds 1000 in one day.

Who knows? Only the Shadow, for the stars seem to have as good a track record as the economic advisors / Federal Reserve System asshats.

 

Laowei Gweilo's picture

no casino has odds like a Chinese IPO over last 5 years

mrpxsytin's picture

We know what can, and will, go wrong. But save those sob stories for someone else.

As an Australian I simply sit and wait for the early exiters of the Ponxi (awesome pun) to bail out of China with their hard-earned fiat, and flood the Australian property market with it. Thus, continuing the magical wealth effect for that little bit longer. This party is twisted, but it sure is fun!

Al Tinfoil's picture

WHAT?!?  China allows actual people to play the stock market?  Where are the algos?  And the Dark Pools? You can't have market liquidity without algos and Dark Pools! 

Whiskey Tango Texas's picture

Laughing hard at that Chinese state sponsored pump-n-dump on retail in their year of the sheep.  

antidisestablishmentarianismishness's picture

But when these same people buy gold we hear how wise and experienced they are.  Weird.

dumdum's picture

Wisdom and experience goes out the door very quickly when promise of fiat wealth is made possible through leveraged speculalation. Unfortunately, China has already caught the disease. It's only downhill from here. 

tarabel's picture

 

 

So that's a total of 150 million individual accounts, if I read the X 10,000 thing properly. And an increasing skew towards lower-educated people gambling with their meager life savings in the big rig casino of life. Also note the acute drop in participation by the highly-educated who have apparently decided to do a Horace Greeley thing with their cash. Go West, young Communist.

Actually this reminds me of Albania back in the 90s, which saw the entire country collapse into an AK-toting heap of smoking ruins due to a multi-level scheme that captured the interest of virtually the entire population before it fell apart. And brought the government crashing down even though they had nothing at all to do with it.

This isn't a grab your popcorn thing. More like pizza, wings, and beer because we're talking playoffs, baby. Big time.

KingFiat's picture

It it not just in China. Here in Scandinavia it is also incredible how retail investors are lured into risky leverated long bets on stocks.

A few weeks ago one of my stock brokers offered me loans up to 85% of the current market value of my stocks held there, with the stocks held there put up as security. Interest rate: 0.99 percent per year. This stock broker, which is a major player here with a large share of the unsophisticated retail investors, gave this offer to all their clients, and told them they could use the money for whatever they want, including buying more stocks to increase profits.

I wonder how many of the sheeple use this 6+ times leverage without knowing about the risks. Probably a lot, as they feel safe. Stock prices have been rising, and there are "strong" laws and regulations protecting the unsophisticated retail investor here.

One of the regulations say that a stock broker is not allowed to offer unsophisticated retail investors investments where more than the original invested capital may be lost without first giving special advice to the investor regarding the risks involved and ensuring the investor understands the risks.

But because the offer to invest in stocks is separate from the offer to loan money with the stocks as security, this is not technically an offer of a leveraged investment. So no requirement to warn the investors, although they in reality are lured into highly leveraged bets.

Nobody For President's picture

How do you say 'muppets' in Chinese?

Apostate2's picture

Bu ou. But it means raghead dolls. 

q99x2's picture

Hope those suckers hacked a version of the FED's software to use when their markets bite the dust.

The Ingenious Gentleman's picture

I remember watching the Shanghai Stock Exchange in 2008. I was able to predict the fall almost to the day after reading a few Zerohedge-type articles. 

It went from 4,380 points in January 2008 to 1,820 points at the end of December 2008 - a fall of 65%.

Mercuryquicksilver's picture

"So many shoe shine boys in China."   -Joseph Kenedy 1929