Unprecedented gains and name-changes are two traits of the world’s best performing stock market this year: China. The stock exchanges of Shenzhen and Shanghai reflect the magnitude of consumer confidence as equity is being marketed and consumed like consumer-packaged goods.
The Shenzhen and Shanghai stock exchanges are up 55% and 27% respectively since the start of 2015, with no strong signs of slowing down as trade volumes soar. According the The Wall Street Journal, the Shenzhen market has been driven by quick trades from retail investors who buy and sell based seemingly on what they read in state-owned media and on discussions with friends. They’re trading China’s hottest young companies, and in this respect the Shenzhen exchange is beginning to look like a younger version of the U.S. NASDAQ Index. Trading on these two exchanges seems to be an emerging trend and topic of casual discussion among Chinese Millennials.
“I’m just dabbling. If all your friends are buying stocks and talking about it, and you don’t buy, then you have nothing to talk to them about,” said 32-year old Liu Wei, who works in real-estate management in Shenzhen.
This month a property development firm (Shanghai Duolun Industry Co.) issued an annual report saying it had experienced a 90% drop in revenue. A couple of days later, the stock rose 10% after the company announced a name change to P2P Financial Information Service Co. Last July, there was a Hunan-style restaurant chain that renamed itself Cloud Live Technology and pledged to focus on cloud computing software; however, 90% of its revenues still come from restaurants. Strange? Not this year. So far in 2015 in China more than 70 public companies have changed their names. Popular terms that seem to attract investors include environmental protection, technology, entertainment and finance. If a company even sounds like it has potential, consumers believe that it will increase in value. If something as simple as a name change can repair a 90% drop in revenue, maybe I can turn into an overnight celebrity if I go by ‘Vlad Pitt.’
China’s collectivist culture is shown through the equity markets, with buy/sell decisions seemingly made on a social basis without much research; even those with six-figure portfolios will invest based simply on a friend’s advice. According to our Global MONITOR data, just over half (56%) of consumers in China strongly agree/agree with the statement: “I am increasingly likely to spend time researching a product before making a purchase (compared with 68% in U.S.).” This is also seen in attitudes towards the market, with a much higher chance of being right than wrong at the moment. Chinese consumers’ activity with equity markets, unseen virtually anywhere else, reflects consumer confidence in their country as a whole. A whopping 87% of consumers in China believe that things are going very/fairly well in their country these days (compared with 38% in U.S.). How’s that for confidence? Even so, this could very quickly take a turn for the worse if the market reverses with Chinese retail investors taking out ever more loans from their brokers (referred to as ‘margin’).