A man walks past an electronic board showing the benchmark Shanghai and Shenzhen stock indices, on a pedestrian overpass at the Pudong financial district in Shanghai on June 26. Chinese stocks plunged over 7 percent on Friday, with one key index recording its biggest fall since 2008, hit by tight liquidity conditions ahead of the quarter-end and uncertainty over the central bank's easing policy.ALY SONG/Reuters
Wang Yan is starting to regret that day two months ago when she gave into temptation and piled into the Chinese equity market.
"Back then, I thought I must be stupid not investing in stocks as making money out of it was so easy," said Ms. Wang, 26, who works for a publisher in Hangzhou, in China's eastern Zhejiang province. "Now I think I'm even more stupid as the money I lost almost equals my one-year salary."
As Chinese shares turn from the world's best performers into the biggest losers, concern is spreading among individual investors who account for more than 80 per cent of trading on mainland exchanges. The market's reversal – punctuated by a 7.4-per-cent tumble in the Shanghai composite index on Friday – is dominating conversations across the country as the world's biggest population tries to gauge whether the worst is over.
"People at work talk about their stock investment all day, debating whether the market has exited a bull run and entered bear market," said Liu Chang, 28, who works in the tobacco industry in Wuxi, near Shanghai. "People who are not mentally strong enough have exited the market."
Amateur investors have been one of the biggest drivers of China's rally over the past year, opening new stock accounts at a record pace and using an unprecedented amount of borrowed money to amplify their bets on the $8.8-trillion (U.S.) market. The flood of fresh cash has left the median stock on mainland exchanges valued at about 85 times earnings – higher than when the market peaked in October, 2007.
Margin debt
Friday's selloff was sparked in part by concern that leveraged investors are unwinding their positions, after data showed outstanding margin debt on the Shanghai stock exchange fell for a fourth straight day on Thursday.
Some investors are keeping their resolve as shares fall. Lei Xianrong, a 33-year-old in Shanghai who has about 300,000 yuan ($59,000 Canadian) USD in the stock market, says most of his positions are in companies such as banks that have low valuations. He expects to be insulated if shares fall further, so he's willing to endure any market swings.
"I'm temporarily still bullish on the market going forward," Mr. Lei said.
International investors aren't so sanguine. Morgan Stanley advised clients to refrain from purchasing mainland shares in a report on Friday, while strategists at BlackRock Inc., Credit Suisse Group AG and Bank of America Corp. all warned last week that Chinese equities are in a bubble. Bocom International Holdings Co. said this month that a market peak is near as traders continuously test whether "the greater fool" will step in to buy.
For Icy Chen, the stomach-churning volatility hasn't been easy. The 26-year-old, who works in the financial industry in Shanghai, has been playing the song Courage, by Hong Kong pop star Miriam Yeung, on repeat all day to help calm her nerves.
"I regret it so much that I didn't cash out at the peak," said Ms. Chen. "I hate to make a loss."