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Shanghai Stock Exchange in Ultimo

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Shanghai Stock Exchange in Ultimo

Many have recently seen the picture of the Chinese fruiterer trading the equity market at his ramshackle cart. Last week I had my own experience of a Chinese immigrant taxi driver who was ferrying me from the city back to Ultimo.

This enterprising driver had cobbled together a home made plywood plateau from which to secure his laptop. On the laptop was a live price feed of the Shanghai Stock Exchange Composite Index. He told me that he “supplemented his weekly income by trading the Shanghai”. When I asked him how he was doing this week he replied “ah, heavy losses. Very bad time. Look here” at which point he used one hand to keep hold of the steering wheel, while the other darted across to the lap top where he ran a series of technical indicators, such as the 30, 60 ands 90 day moving averages. He continued, “when the 30 day MA falls below the 90 day MA, then that is bad for market”. He told me he traded within a three day window so that he didn’t have to settle on any trades.

Undoubtedly the extreme volatility in the Chinese stock market has made and lost many people money. I suspect many more retail investors losing money than making money. However, even after various attempts from the Chinese government to prop up the value of shares listed on the exchange, today we learn of a wave of Chinese companies halting trading in their shares. 1,249 companies have halted trading on mainland Chinese exchanges, locking up $2.2 trillion of shares, or about 33 per cent of China’s market capitalisation. Whether it is leverage gained through never settling a trade or accessing the estimated $339 billion of margin finance cited from Chinese brokers, or even the rapidly growing Peer-to-Peer lending facilities, there seems to be a mountain of debt fuelling an insatiable desire to get rich quick in the stock market.

I can’t help but think that one of the best investments that my taxi driver and so many other first time investors in China could make is to learn the lessons of a value investor such as Ben Graham.

Scott Phillips is the Head of Distribution of Montgomery Investment Management. To invest with Montgomery, find out more.

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Scott joined Montgomery Investment Management in 2013. Scott joined the firm from BlackRock Investment Management, where he was Managing Director, Head of Retail Australia for 12 years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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3 Comments

  1. well government told them to invest — and they did —

    “I’m from the government, and I’m here to help.” ho;ho;ho

  2. But Roger, I can tell you that they will never make that investment. Putting the mentality aside – of the stockmarket being a place to get rich quick (a.k.a. the casino) – these people (regardless of cultural background) do not want to know.

    They see it as an impediment, or that they are being slowed down from making money if they have to read a book (let alone the tome that is “Security Analysis”).

    Like the Parable of the Sower, there are those who do not hear and those who hear, but it is put in the “too hard basket”. There are none so blind as those who refuse to see.

  3. This was always going to end badly. Their market has been a real casino.

    The impact to the Chinese economy and the contagion from this is yet to be seen. And Aust is at the centre of this as we know.

    Could this be the first catalyst for the Syd property market to start falling?

    Hope your taxi driver only looks at his laptop when stopped and use the 30ma/90ma as a stop loss as well !!

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