The Chinese stock market is a very competitive one, and the influence it has had on China’s economy is tremendous. It is obvious from their massive numbers so are their companies and especially those listed in their exchanges.
Their exchanges are categorized into regions, and each region has a specific group of companies that dominate their exchanges. The following are some of the best performing exchanges in China; Shanghai Stock Exchange and the Shenzhen Stock Exchange.
There are also very popular indices that are actively traded in China because of their liquidity and volatility, one the most notable ones is the Hang Seng Index. There are also other indices and exchanges in China that are region specific, but they are not as popular as the aforementioned.
This gives the Chinese people an opening to the world of finance and investing, and the best part of it all is that the Chinese people are open and are willing, active investors.
Characteristics of the Chinese Stock Market
The Chinese stock market has several characteristics that make it unique to their investment styles. That is why many traders from around the world who have been successful at their craft in other markets around the world may get a chance to invest in the Chinese stock market, and they may end up failing miserably.
This is because the Chinese investors have a different view of how a market should be viewed and thus utilized.
The Chinese stock market has very short trading hours compared to most exchanges around the world; they only open for four hours a day with two sessions, the first two hours are the morning session, and they break for lunch and then have the last two hours for the afternoon session and the markets are closed.
Being able to squeeze a profit from this market can be a little daunting for the long-term investors, this is because the sessions themselves are quite short.
The short term investors can be successful because the market fits their trading approach and their ability to make decisions faster and accurately will give them an edge over other investors.
Retail Influence in the Chinese Stock Market
The Chinese stock market is majorly driven by the retail traders; this group offers most of the trading volume in any given session.
This is one of the things that set apart the Chinese stock market and other markets around the world. Approximately 80% of the trading volume is derived from the retail investors, and this means that even the larger investors and institutions with their financial muscle cannot rival the dominance displayed the retail traders.
This is one of the reasons why the Chinese stock market can rally hundreds of points on a particular direction from a simple display of strength on a particular stock or index for days or even months given that most retail investors jump on trends to be part of it even without the proper basis of the move.
Their market is particularly sentiment based, and the best news is pumped into the market, the more the trend holds and becomes sustained over a long period.
The same happens when the market pauses, and it causes a panic, the same investors who had positions will sell them, and the aggressive nature of selling will make the market tank.
This has been seen over the years, and that is why the Chinese stock market is considered one of the most volatile markets in the world.
The other thing that retail investors bring to market is the aspect of a free market; since they are in control of the bigger moves there is a very small chance that the institutional investors can manipulate the market in their favor for longer periods of time may be in the short term but not on a long-term basis.
Governments Influence in the Chinese Stock Market
The Chinese government plays a very major role in the Chinese stock market. The government has a very big influence which they make it felt during adverse trading conditions. The government intervenes mostly when the market is experiencing heavy short selling or uncontrolled buying that may cause the stocks to be overvalued.
The Chinese government gets involved directly and indirectly in the stock market; they get involved directly by forcing a close of the markets before the trading hours are up and this happens especially when the market is in panic, and there is a lot of heavy short selling going on.
They also get involved indirectly by boosting confidence back into the market, they do this by pumping cash into the markets and buying up equity, they did that at the end of last year’s panic selling in the market by pumping $250 billion to change the sentiment at that particular time.
The government does not accept any involvement in this act, but there is solid evidence that they do that from time to time.
The Chinese stock market is unique without a doubt; this makes it quite lucrative for outside investors, but the government has put up regulations to halt an increase in outside investors getting into the Chinese stock market.
They have categorized the shares into A-shares and B-shares, the prior is quoted in Yuan and are meant for Chinese investors mainly, and the B-shares are quoted in dollars, and that means they can be traded by both the locals and the investors from around the world.
The A-shares can only be traded by the outside investors if they go through the QFII program successfully and even after this they are still heavily regulated by their interactions with the Chinese stock market.
Their market is so volatile in that it can move both ways on a day covering up to more than 5%. This means that if you are a quick at reacting to moves you can easily make a lot of money in this market.