China's wild stock market swings hurt a $28 trillion bull case

Millions of social media-driven investors prove fickle, exacerbating price swings

China's 200 million-strong army of retail investors was supposed to help the stock market turn a corner. Instead, it has become a source of weakness.

The country's US$9.7 trillion (S$12.7 trillion) stock market experienced a rapid boom and bust starting in late September, when central bank stimulus pushed the benchmark CSI 300 Index 25 per cent higher in five days of trading. Many small investors who came late to the party were caught out when equities then slumped, and were forced to beat a hasty retreat.

"Close securities account" as a phrase cropped up 56 million times on social media platform WeChat on Oct 9, as the benchmark index posted its worst performance since 2020. Money soon shifted back into savings from stock trading accounts, a bank index shows. Retail investors took to social media to lament their losses, with one user on Xiaohongshu saying "the stock market is really not suitable for a novice like me".

The abrupt shift in sentiment has undermined hopes among bulls that China's huge retail investor base, sitting on US$21 trillion (S$28 trillion) of deposits, will help drive a long-term rally. Whipped by social media, small investors have instead proven fickle, turning a positive - the ability to quickly deploy capital to the stock market - into a negative, as they exacerbated price swings.