'The police will visit you': why GameStonk won't come to China

China Literature

05/02/2021 05:54

By Samuel Shen and Tom Westbrook
    Feb 5 (Reuters) - In his Hangzhou apartment in eastern
China, Wen Hao had just finished his daily stockpicking video
when he discovered he'd been barred from social media platform
Toutiao, a day after inviting netizens to join his
stock-recommending community.    
    In a country where trading activities are closely monitored
and the internet censored, Wen, 35, reckoned his own blocking
showed why the mass buying that sent shares in U.S. videogame
retailer GameStop more than 2,000% higher over two weeks could
never happen in China.
    "It's OK if you have one hundred followers," said Wen, a
self-styled investment adviser who livestreams his stock
recommendations everyday via Wechat. "But if you ask thousands
of followers to buy a stock at the same time via social media in
China, the police will visit you."
    GameStop's rally grabbed world market headlines for the
manner in which swarms of Reddit users took on big short-sellers
and hedge funds. 
    Efforts to emulate that sort of drama in Asia's
idiosyncratic markets have been isolated so far. There was a
small-scale online crusade to support Malaysia's heavily shorted
glove makers, and calls in South Korea to retain a ban on
short-selling.
    But such retail cheerleaders have struggled to attract much
of a following. China's stock market once had the reputation of
being a casino, yet the country's stringent censorship, absence
of famous short-sellers and a general tendency to not cross
state directives stymie their efforts. 
    Dean Li, a blogger on Xueqiu.com, a Reddit-like investor
community, said the GameStop saga had demonstrated that "if a
short-seller dares to rashly announce bearish bets against a
listed company, it will be in trouble."
    But both short-selling and option trading, the key drivers
of GameStop's stratospheric rise, are restricted in China,
making such a duel impossible, he said.
   Huang Wei, founder of an online investment community that
comprises what he calls "grassroots investors", said he
emphasizes with U.S. retail investors in their "riot" against
Wall Street short-sellers, but in China, there's no grounds for
a retail investor uprising.
    "It's a clash of people's value outlook. It's like farmers
uprising against tyranny," Huang said.
        
    NO CHE OR MAO  
    "There isn't widespread public discontent at the moment....
so you don't see Che Guevara or Mao Zedong in the market," Huang
said, referring to the charismatic leaders in Cuban and Chinese
revolutions. 
    The chance of a Chinese equivalent to GameStop emerging has
been dimmed further by recent capital market reforms aimed at
weeding out weak companies and encouraging long-term investment.
Chinese regulators are also cracking down on price manipulation
and Internet stock recommendations.
    The China Securities Regulatory Commission campaign last
September scrutinized illegitimate stock recommendations, also
taking aim at "market black mouths" who spread misleading
information to influence stock prices, as well as "black apps",
which attract investor clients using chat groups on social
media. 
    Chinese hedge fund manager Yuan Yuwei said the trading
patterns seen in GameStop are not new in China, or Hong Kong,
where speculators have talked up stocks in pump-and-dump
schemes.  
    "The pattern is identical. You drive up share prices and
attract followers. And then, you dump your holdings to late
comers. The only difference is that you have no or little short
positions (in China)," he said, adding such practices have
become much less common in China in recent years. 
    Still, Nirgunan Tiruchelvam, head of consumer equity
research at Tellimer, said he expected the retail frenzy to
flare up soon in Asia, including China. 
    "That could be a perfect storm where you have the use of
these Robinhood-type platforms, plus, the spread of internet
chat groups, plus, the highly shorted names. That would create a
potent cocktail," said Tiruchelvam, who identified stocks
including China Literature  0772.HK  and MTR Corp  0066.HK  as
potential targets. "This is actually the beginning of a massive
wave of investing behavior along these lines."  

 (Editing by Vidya Ranganathan and Gerry Doyle)
 ((samuel.shen@thomsonreuters.com;  +86 21 20830018; Reuters
Messaging: samuel.shen.thomsonreuters.com@reuters.net))