9:20 am - A great article on how sheep gets slaughtered ?

An investor viewing decline stock prices in Shanghai. (Eugene Hoshiko/The Associated Press)
Small investors in China get a lesson instock bubbles
By David Barboza
Published: April 2, 2008
SHANGHAI : A year ago, investors like Guan Ling were ebullient. The mainland
Chinese stock markets had climbed about 500 percent in two years, setting off a
stock buying frenzy.
When experts periodically warned about the possibility of a bubble, prices dipped
temporarily, then soared even higher, breaking records and inciting another mad
dash to snap up equities.
"The market was going wild," said Guan, 49, who a few years ago closed his real
estate company to invest in stocks full time. "Everybody was talking about how much
they had earned, how much more they would invest and which stocks had jumped 20
times, or even 30 times."
That was last year. The Shanghai composite index has plunged 45 percent from its
high, reached last October. The first quarter of this year, which ended Monday with a
huge sell-off, was the worst ever for the market.
Suddenly, millions of small investors who were crowding into brokerage houses,
spending the entire day there playing cards, trading stocks, eating noodles and
cheering on the markets with other day traders and retirees, are feeling depressed
and angry.
"These days my family quarrels a lot," says Zhang Liying, 55, a retired hotel waitress
who with her husband invested all their savings in the stock market. "My husband
asked me to sell; I wanted to hold for a while. Now my husband condemns me as so
stupid that we lost our family's savings."
Si Dansu is even more distraught, but she blames the government.
"I devoted my whole life to the country," Si said. "I went to the countryside after
graduation, and worked as an engineer in a Shanghai factory until retirement. I
invested almost all my savings and retirement fund in the market 10 years ago. But
now I'm totally penniless. All my stocks went down."
The two other Chinese markets also have dropped from highs last year, with the
Shenzhen composite index down 38 percent and the Hang Seng index in Hong Kong
falling 33 percent before recovering recently.
Other parts of Asia have been as bad, or worse. In India, stock prices have plunged
31 percent in Mumbai. They are off 31 percent in Japan and a whopping 53 percent
in Vietnam, another booming economy. Angry investors have burned a securities
regulator in effigy in Mumbai, and some are in tears in Ho Chi Minh City, Vietnam.
"Some of them have cried," says Nguyen Quang Tri, 74, a retired cement company
manager who was visiting a Ho Chi Minh City brokerage house this week. "I have my
own equity, but most of the people here borrowed money from the bank."
The market mayhem began after concerns grew late last year about inflation at home
and a U.S. financial crisis. Now, even though the Chinese economy is growing at its
fastest pace in more than a decade, stock prices have fallen back to earth, crushing
small investors on the way down.
Few experts believe the stock plunge is a major threat to growth in the economy
here. But there are worries that a prolonged downturn could reverberate through the
Chinese financial markets - especially since a large number of corporations had
aggressively shifted money, sometimes secretly, to play the market.
By some estimates, 15 percent to 20 percent of the profits reported last year by
publicly listed companies in Shanghai that are not involved in banking or finance
(which usually invest in stocks) came from stock trading gains.
Companies with primary businesses like selling electricity, or even sports jackets,
were moonlighting by trading stocks, hoping to bolster their earnings.
"Companies had a lot of excess cash," said Jing Ulrich, a market analyst at
JPMorgan in Hong Kong. "And a lot of that cash did leak into the stock market."
But the big companies were following the small investor. JPMorgan estimates that
150 million people in China were invested in the Chinese stock market as of the end
of last year. That may still be a small slice of the 1.3 billion people in China, but it is a
huge new constituency, and it has led to the birth of both a new source of potential
popular discontent and a new lifestyle: the diehard investor.
Chen Donghao is one convert. A 22-year-old recent college graduate, he is a fixture
at a Shanghai brokerage house.
In April 2006, when he was still a student majoring in art design, his family gave him
about $70,000 to invest in the stock market.
It was an ideal time to get in.
"When I started, the stock market was around 1,700," he said referring to the
Shanghai composite index, noting that today, despite the drop, the index is still up at
about 3,400. "I made a lot of money. So since the beginning of this year I decided to
open a restaurant. I'd like to open a chain of famous restaurants in Shanghai."
Shopkeepers, real estate brokers, even maids and watermelon hawkers are said to
have become day traders.
A new version of the national anthem made its way around the country last year,
beginning, "Arise! Ye who haven't opened an account! Pour your gold and silver into
the hot market!"
The anthem went on: "The Chinese nation faces its craziest time. The passionate
roar of our peoples will be heard!"
People responded. Here in Shanghai, brokerage houses with giant electronic
screens started to draw huge crowds, including many retirees who were content to
spend the entire day transfixed by the sight of rising prices.
In some brokerage houses, entire floors are divided into small and midsize rooms
that investors camp out in, from opening to closing bell, with their lunch bags, knitting
gear, playing cards and newspapers to help them feel at home.
Only now, many investors cannot bear to look at their screens.
"I'm getting out of the game," said Yuan Yuan, 23, a researcher at a fund company in
Shenzhen who also invests on his own. "The game is over. Big institutions pulled out
first, only leaving the small investors."
In mainland China, the government fears that angry investors can be a social
problem. And so while the state-run media report on the ups and downs of the
market, and even warn investors of the risks and pitfalls of investing, the press does
not usually report on investors' anger.
"Actually there are a lot of complaints, but the Chinese media can't report this," said
Guan, the former real estate company owner.
Now, in the brokerage house corridors - corridors of pain - one can hear complaints
about all the market flaws: the government does not regulate the stock market and it
participates in the mainland markets by allowing mostly big state-owned companies
to go public.
There are also complaints about insider trading, stock manipulation, and big
investors with government connections, pumping and dumping stocks on small
investors.
But in China, experts say, the small investor also tends to be a speculator, a
gambler, and that may be why the markets are so volatile, and so unforgiving.
"You know Warren Buffett?" said Chen Weihua, a 69-year-old retired engineer who
once worked in Egypt. "He's a master. He has a theory to hold stocks for a long time.
But this theory doesn't work in China. Look at Ping An."
Ping An was a state-owned company that went public last year, with shares that
soared to 149 yuan, or $21.25, a share in Shanghai, then sank. After sinking to a low
of 47 yuan, it is now trading at about 55 yuan a share, despite strong profit growth.
This was not the way it was supposed to end. Many investors had been betting that
the Chinese government would not allow the mainland stock markets to crash before
the Olympic Games come to Beijing in August.
After the Games, the powerful rumor went, everyone would sell, leading to a steep
market plunge.
And if anything serious happened before the Olympics, the government would
certainly do something to prop up the market.
They are still waiting.
"It's a deformed market, an unhealthy market," Guan said. "We've always had long
bear markets and short bull markets."
"Look, it took two years to go from 1,000 to 6,000 but two months to go from 6,000 to
3,500," he said referring to the Shanghai index.
Keith Bradsher contributed reporting from Ho Chi Minh City and Chen Yang
contributed research from Shanghai.