What Buying Sentiment? While these shoppers in Shenzhen are in a shopping mood, the country's retail investors haven't been in a buying spirit of late, spooked away by the benchmark Index's rapid ascent.  Photo: Andrew Vanburen

Main reference: Story in Shenzhen News

THE RECENT upsurge in China’s capital markets is affecting different investors very differently.

Retail investor accounts have declined for eight consecutive weeks while institutional funds keep pouring in with no letup in sight.

Since the beginning of December – just a few short weeks ago – China’s benchmark Shanghai Composite Index has shot up over 19%, putting an exclamation point on what was otherwise a dreary year for PRC-listed equities.

This sudden winter climb has seen many shareholders fall into two increasingly distinct groups based on their buying and selling behavior.

Those adding to their holdings and branching out into new stock picks are more and more likely to be institutional investors via a growing number of funds trolling the A-share markets.

On the other hand, the bullish bourse behavior of late seems to be driving retail investors in the other direction, by and large, with many investors on a budget cashing in their chips amid rising valuations.

The decline in new retail investor account applications for eight consecutive weeks is testimony to this trend.

Meanwhile, just last week alone a total of 88,700 new fund clients were brought onboard to ply the A-share markets in Shanghai and Shenzhen – the highest seven-day tally witnessed so far this year.

The recent A-share run has happened too fast for some investors

Many brokers polled said their retail investor clientele were not especially upbeat as far as sentiment was concerned and few were of the opinion that the bullish months of December and January would continue much longer, with the near-term zenith likely within sight.

In fact, it seems a majority notion is coalescing among retail investors that rather than jump aboard the current market upswing now, it was better to cash out first and await a new nadir to be reached before reentering equities full bore.

There was also a perception within large portions of the retail investor population that no one single headline-grabbing market-moving act by the bourse regulator or a blue chip or two would bring them back en masse and boost confidence across the board.

Many seem to think the recent rise happened too fast, and that an equally or even more abrupt corrective descent was on the horizon.

This must have the country’s stock market watchdog – the China Securities Regulatory Commission – wringing its hands in frustration.

For most of 2012, it had been tinkering with various buttons and levers in an attempt to make the country’s capital markets more appealing to a larger body of investors.

But just as the benchmark Index finally begins a sustained climb, the retail investors that the CSRC had been enticing for so long to buy into the market now seem to be collectively spooked back out of the bourse by rising P/E ratios.

It would be a classic “damned if you do” scenario if it weren’t for the virtual flurry of new fund accounts coming in to pick through the rejects left behind by the departing retail investors.

With this scenario in place, the upcoming full-year earnings reporting season takes on an even more important role.

If the bulk of the bourse heavyweights surprise on the upside, especially the early reporters, then that could bring back the retail investors in droves.

See also:

8 Reasons Why A-Share Run Still Kicking

E FUND: Betting On A China Recovery

ZULAUF: China Shares Could Jump 30% In H1

SANGUINE SNAKE? Over 70% Of Shareholders Upbeat On 2013

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