Retail investors in China, particularly day-traders like Lu Delong, have been quick to sell off stocks in early 2025, marking one of the weakest starts to the year for China’s $11 trillion stock market in nearly a decade. Despite initial optimism following Beijing’s stimulus pledges, many investors, including Lu, were forced to cut their losses just a few months after positioning for a rally.
Lu, who had turned bullish on Chinese stocks in late 2024, expressed confusion over the rapid market sell-off, pointing to uncertainties surrounding U.S. trade policy under President-elect Donald Trump but noting the absence of any new announcements against China. He attributed the sharp decline to market participants pushing the government for more aggressive policies, and he now plans to hold cash through the upcoming Chinese Lunar New Year holidays.
This wave of selling reflects broader concerns among retail investors, who have been disillusioned by economic policies and the ongoing threat of U.S. tariffs. Retail money accounts for around 70% of China’s stock market trading, meaning a continued sell-off could trigger a wider unwinding of leveraged bets, creating instability in the market.
In 2024, Chinese stocks managed their first annual gain after three years of decline, caused by the COVID-19 pandemic, struggles in the property sector, and weak consumer confidence. However, the current sell-off threatens to undo the progress made in 2024 and risks pushing the market back into a years-long downtrend.
Many observers fear that if the sell-off continues, it could undermine Beijing’s efforts to stabilize capital markets and raise funds for economic recovery. Dong Baozhen, chairman of asset manager Lingtong Shengtai, warned that another boom-and-bust cycle would harm China’s economy by destroying wealth, reducing consumption, and eroding confidence in the markets.
The government is under pressure to avoid another sharp market decline, which would further diminish investor confidence in China’s economic outlook. As the market continues to fluctuate, the challenge for policymakers is to manage investor sentiment while ensuring that the recovery remains on track.
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