Menu Close

China’s Stock Market Feeling the Loss of Its “Smart Money”

This is a syndicated repost published with the permission of Money Morning - We Make Investing Profitable. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

One reason behind the brutal 8.5% loss suffered by China’s stock market today (Monday) is that its wealthiest investors – China’s “smart money” – are no longer around to help prop up prices.

China's stock marketIn the United States, “smart money” is a term describing experienced, well-informed investors who understand how to use market movements to their advantage.

China’s smart investors did very, very well in the year leading up toChina’s stock market crash. In the 12 months prior to mid-June, the Shanghai Index rose 150%. China’s smart money got in early for the most part and enjoyed the ride.

But when China’s stock market began to falter, the smart money took the hint and started for the exits.

According to Bloomberg, the number of traders with holdings worth 10 million ($1.56 million) or more yuan declined by 28% in July, according to China Securities Depository and Clearing Corp. data. The number of traders with holdings worth between 1 million and 10 million yuan fell by 22%.

Meanwhile, the number of accounts with holdings of less than 100,000 yuan (about $15,613) rose by 8%.

Of course, some of that was the result of the decline of China’s stock market. But China’s smart money clearly saw a chance to do a little profit-taking ahead of a broad market sell-off.

The Smart Money Saw China’s Stock Market Crash Coming

“Wealthy investors, who have been through bear markets, are better at exiting,” Hu Xingdou, an economics professor at the Beijing Institute of Technology, told Bloomberg.

And the heavy government intervention in China’s stock market presented the smart money an easy way to exit their positions and preserve most of their gains. The Chinese government and entities acting on its behalf conveniently bought up the shares the smart money wanted to sell.

Good for them, but not so good for another group of investors…

Meanwhile, the government buying raised confidence among China’s small investors. They held on – or bought more. That group got hammered again today.

With the latest 8.5% fall, China’s stock market now has suffered a decline of 38% since the mid-June peak. With the government backing off and much of the smart money on the sidelines, there’s little to prevent China’s stock market from sliding even further.

“The high net worth clients are the ones who moved the market,” Francis Cheung, the head of China and Hong Kong strategy at CLSA, told Bloomberg. “They tend to be more savvy.”

For now, China’s smart money appears to be moving capital out of the country to overseas investments. They won’t move back into China’s stock market until they’re satisfied the prices are worth paying.

“China’s capital outflow in July coincided with big investors selling shares,” Steve Wang, chief China economist at Reorient Financial Markets Ltd. in Hong Kong, told Bloomberg. “Small players have been drawn in by government measures to support the market, while wealthy investors cut their stakes.”

Tags: , , , ,

 

To get full access to all Money Morning content, click here

About Money Morning: Money Morning gives you access to a team of ten market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.

Disclaimer: © 2015 Money Morning and Money Map Press. All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning. 16 W. Madison St. Baltimore, MD, 21201.

 

The post China’s Stock Market Feeling the Loss of Its “Smart Money” appeared first on Money Morning. Reposted with permission.

Join the conversation and have a little fun at Capitalstool.com. If you are a new visitor to the Stool, please register and join in! To post your observations and charts, and snide, but good-natured, comments, click here to register. Be sure to respond to the confirmation email which is sent instantly. If not in your inbox, check your spam filter.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

RSS
Follow by Email
LinkedIn
Share

Discover more from The Wall Street Examiner

Subscribe now to keep reading and get access to the full archive.

Continue reading