A Chinese bank teller counts yuan banknotes in a bank in Huaibei, east China's Anhui Province, July 6, 2012.
Jie Zhao | Corbis News | Getty Images
BEIJING – Chinese investors are turning to the local stock market as once lucrative options like real estate and cryptocurrencies have come under tighter government scrutiny.
Since the end of July, the daily trading volume of China's A-shares on the mainland has held over 1 trillion yuan ($ 154.56 billion) and rose to an annual high of 1.71 trillion yuan on Wednesday, according to Wind Information.
That is about twice the daily average trading volume of 840 billion yuan over the past two years, the data showed.
And on Wednesday the trading volume in the Shanghai Composite alone was 842.2 billion yuan, the highest since July 2015, the summer when the Chinese stock market collapsed amid high levels of speculation.
Six years later, that summer was one of the most intense Chinese government regulations affecting the technology and education sectors. A basic political call for "shared prosperity" – moderate prosperity for all, not just a few – is Beijing's impetus for this new policy.
Ting Lu, China's chief economist at Nomura, believes this new political push to reduce wealth inequality will be most felt in real estate.
Soaring house prices over the past few decades have created significant speculation and financial stress on families trying to buy a home in an area with a good school or close to work. The Chinese authorities have stressed in recent years that "there are houses to live in, not to speculate" and have limited the ability of property developers to build new homes with high debts.
"Markets may have been so focused on the regulatory storm that they are ignoring the elephant in the room: Beijing's restrictions on the real estate sector, which accounts for a quarter of the Chinese economy and half of the global construction business," Lu said in an Aug. 24 report.
"Markets should be prepared for what may be a much worse than expected growth slowdown, more credit and bond defaults and potential stock market turmoil," he said.
More short term stock trading
According to Noah Research, around 65% of China's household wealth was in real estate in 2018, compared with 49% in the US. That means a lot of Chinese capital could flow into stocks.
"Speculating on real estate is definitely out of the game," said Schelling Xie, senior analyst at Stansberry China, according to a CNBC translation in Mandarin. As the Chinese authorities tightened a ban on cryptocurrency transactions this year, "where is this money going?"
He believes that more money will flow into the stock market, especially as uncertainty about economic growth leads investors to expect that monetary policy will only loosen up and more capital will flow.
The mainland stock market, the second largest in the world, has grown strongly since the 2015 crash and has attracted a greater proportion of institutional investors. But the speculation-prone behavior of retail investors remains on an exchange that many have compared to a casino.
In the recent surge in trading volume, many investors have switched from a long-term to a short-term approach because it is "not that difficult" to take a surge in some lesser-known stocks if a trader is "sensitive enough". said Xi.
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The increased investor interest has had different effects on Chinese stock indices. This week the Shanghai Composite is on track with gains of more than 2%, while the Shenzhen Composite has barely changed and the Star 50 is down more than 5%.
"The recent high trading volume is mainly driven by sector rotation," said Chaoping Zhu, global market strategist at JPMorgan Asset Management. "Amid ongoing market uncertainty, investors have sold high-valued growth stocks and bought low-valued defensive sectors."
"For example, low-valued blue chips in the banking, securities and real estate sectors are attracting large inflows," he said, adding that quantitative trading has also increased recently.