Kuang Qingming, a banker in Beijing, made a snap investment decision this fall.
With China’s once-booming property market drifting into the doldrums, Mr. Kuang sold an apartment he bought seven years ago for 400,000 renminbi, or roughly $65,000, basically breaking even on the investment. He then plowed half the proceeds straight into the stock market.
“Almost everyone I know is investing, so I think I should be investing, too,” said Mr. Kuang, 51.
“The index has been rising this year,” he added. But his own stock portfolio’s performance, he said, was essentially flat.
China has been grappling with a slowing economy, falling property prices and increasingly tight financing conditions. But the country’s stock markets have been surging, thanks in large part to regular investors like Mr. Kuang.
Ordinary Chinese have been piling into the market at a pace not seen since 2007, before the financial crisis, in some cases pulling money from savings deposits or cashing out of property investments as they try to win big. Investors in Shanghai and Shenzhen opened nearly 900,000 new stock trading accounts in the week that ended Dec. 12 alone-, the most in seven years.
After several lackluster years, Shanghai’s benchmark stock index now ranks as the best-performing major index in the world, up 50 percent so far this year and 31 percent since the start of November. This month, the Shanghai index surpassed 3,100 points — the highest level in nearly five years.
Brokerage firms in China, the largest of which are state-controlled, have been riding high on the rally, too. On Monday, shares in Guosen Securities soared by the maximum limit of 44 percent in their trading debut in Shenzhen, after the company raised 7 billion renminbi in an initial public offering. Haitong Securities and Citic Securities, two of the country’s biggest brokerage companies, are both planning new share sales in Hong Kong.
Although the Chinese leadership has long hoped to see a rebound in the country’s stock markets, the current frenzy carries risks that could stick investors with heavy losses. Much of the trading is also being done on margin, or by using borrowed funds to buy shares. So the boom could unwind even faster if sentiment sours.
“There’s so much leverage in the market now that it’s really easy for it to become very volatile,” said Anne Stevenson-Yang, a co-founder of J Capital Research in Beijing.
China’s market regulators “are not going to tamp down expectations, but they are going to try to control the leverage, in order to make it a little bit less of a casino,” she added.
Authorities are trying to curb the worst excesses of the boom. On Dec. 19, the China Securities Regulatory Commission said in a news release that it had started market-manipulation investigations involving the shares of 18 companies with small market values. The regulator has been seeing new types of short-term manipulation, including “pump and dump” schemes in which investors talk up certain stocks to lift their prices, then quickly sell them at a profit, according to the statement, which was published on its website.
Despite the reputation for widespread insider trading and other manipulative practices, China’s stock markets still attract investors in droves at the earliest signs of a rally.
“Everyone just wants to make some money, so it becomes like gambling,” said a 65-year-old retiree, Mr. Yang, who declined to provide his full name while discussing his investment behavior.
“Why do gamblers continue betting even when they are losing money?” he asked while flicking through screens of stock prices and charts on a trading terminal at a Beijing brokerage firm this month. “It’s the same investing in stocks. If you lose money, you want to make up the losses. If you earn money, you want to earn more.”
Ordinary Chinese investors are willing to tolerate the risks partly because they have relatively few options for how to manage their savings.
This remains the case despite recent pledges of financial overhauls under President Xi Jinping. For example, a new connection between the Shanghai and Hong Kong stock markets that opened last month enables mainland investors, for the first time, to directly buy and sell shares in Hong Kong. But access to the program is restricted to the wealthiest mainland Chinese investors, and the actual trading of Hong Kong stocks has fallen far short of the quotas available.
Investing en Masse
Despite difficult economic conditions, the Chinese stock market has surged. Chinese investors are piling into stocks at the fastest pace since 2007.
1.2
million
+50
%
Shanghai
composite
+40
1.0
New Chinese stock market
trading accounts, weekly
Percentage change
since the end of 2013
+30
0.8
+20
0.6
632,514
Week ending
Dec. 19
S.&P. 500
+10
Nikkei 225
0.4
0
FTSE 100
0.2
−10
0
−20
’07
’08
’09
’10
’11
’12
’13
’14
J
F
M
A
M
J
J
A
S
O
N
D
2014
1.2
million
1.0
New Chinese stock market
trading accounts, weekly
0.8
0.6
632,514
Week ending
Dec. 19
0.4
0.2
0
’07
’08
’09
’10
’11
’12
’13
’14
+50
%
Shanghai
composite
+40
Percentage change
since the end of 2013
+30
+20
S.&P. 500
+10
Nikkei 225
0
FTSE 100
−10
−20
J
F
M
A
M
J
J
A
S
O
N
D
2014
Other popular investment options are looking less attractive. The Chinese property market is no longer the sure bet it once seemed. Prices for newly constructed housing fell 1 to 9 percent in recent months in all 70 mainland cities tracked by the national government, according to data released this month.
And people also appear to be moving money into the stock market from so-called wealth management products, like Yu’e Bao, a hugely popular money market fund controlled by a financial services company affiliated with Alibaba, the e-commerce giant.
Yu’e Bao, introduced in June 2013, is already one of the world’s largest money market funds. But the annual return has fallen to about 4 percent, from nearly 7 percent in January.
“From September, I started moving my money, little by little, from wealth management products and Yu’e Bao into the stock market,” said Chen Haowen, 26, an information technology professional in the southern city of Shenzhen.
In the most recent quarter, the fund’s assets under management fell for the first time, declining to about 535 billion renminbi at the end of September. That’s down from 574 billion renminbi at the end of June.
But as Mr. Chen and others are discovering, China’s stock markets can be much more volatile than money market funds.
“This is the first time I invested in stocks,” Mr. Chen said, adding that he uses social media to track analysis of the markets and for stock recommendations.
“I sold some stocks before and made some money, but now, over all, I am losing money,” he said. “I am still learning.”
Neil Gough reported from Hong Kong, and Cao Li from Beijing.
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