Small investors in China banking on new range of options

Small investors have poured into China's stock markets and moved away from low interest savings accounts at traditional banks.

Their cash has mingled with the millions of dollars pumped in by major domestic players and foreign private equity companies. The result has been staggering.

Earlier this month, shares on the Shanghai Stock Exchange Composite Index closed at a seven-year high, breaking through the 5,000 level for the first time since 2008. By the end of trading, the benchmark index had ended up 1.5 percent to 5,023.10.

The bull run was turning into a rampage as ordinary investors piled into stocks, looking for double digit profit.

"We predicted that domestic stock markets would enjoy significant policy support in the coming years, because of their central role in attracting overseas liquidity back to the Chinese mainland," Matthew Plowright, principal of China Confidential, a research arm of the Financial Times newspaper, said.

"This is acting as a new driver of money supply and (helping) to accelerate the pace of State-owned enterprise reform. These policy supports are long-term and broad-based."

For small investors, the market is seen as the ideal place to grow their financial nest eggs.

According to monthly survey of retail investors by China Confidential, almost half of the 1,000 polled believed it was a "good time" to invest in yuan-denominated A shares. Only 18.5 percent of those who took part in the survey last month in more than 300 Chinese cities felt it was a "bad time" to invest in stocks.

Ma Jing, an information system technician at a news service provider in Shanghai, falls into the upbeat category. Back in August, 2014, she significantly increased her stock portfolio, which now accounts for 80 percent of her investments.

During her spare time, Ma consumes market information. At 6 pm every day, she turns on the television to watch financial news programs for three hours. So far, she has seen the value of her stocks soar by between 50 to 60 percent without revealing further financial information.

Her favorite long-term sectors are emerging industries that combine Internet technologies with traditional businesses, including online education and Internet-based medical services.

"I expect the bullish trend to continue for a while because I think the government is strengthening efforts to support the stock market rally," Ma said. "The index should have no problem hitting 6,000 points."

Lin Hui, a Hong Kong-based lawyer, is just as bullish about the markets. She started investing in stocks in March and is convinced A shares will continue to rise. She expects the Shanghai Composite Index to reach the 8,000-mark.

Earlier this year, she moved part of her portfolio into stocks from wealth management products after the CSI 300, an index consisting of 300 A share stocks listed on the Shanghai and Shenzhen exchanges, climbed above 4,000 points in March. That was rise of 2,000 points compared to the same period last year.

But despite being optimistic about long-term growth, Lin remains cautious about diverting more money into the markets and takes a broader view when it comes to investments. She has 40 percent of her savings in stocks, 30 percent in wealth management products, and another 30 percent in instant access bank accounts.

"Individual small investors like me are just cannon fodder," Lin said, declining to give the amount of her investments. "We get hurt easily by stock market speculation. So we should be very careful about selecting stocks and make sure we have a good understanding of relevant companies."

Sound advice for those planning to take advantage of China's incredible bull run.

Already there are concerns that the A share market is overheating. "A gradual, long-term bull market seems very much aligned with policymakers' interests at present," Plowright, of China Confidential, said.

"But this broad directional trend is unlikely to be smooth, with volatility likely, especially given the scale of recent market gains and the likelihood of corrections and sell-offs as investors take profit," he added.

Naturally, small savers are looking at other opportunities when it comes to investing their money. During the past few years, their options have increased as asset managers and insurance companies have rolled out new products.

But the biggest change has been the rise of Internet wealth management funds. Yuebao, part of the Chinese e-commerce giant Alibaba Group Holding Ltd, is one of the major players. So is Licaitong, which is owned by Tencent Holdings Ltd, the investment group with subsidiaries in media, entertainment, Internet and online advertising services.

The success of these online money market funds has even put pressure on traditional bank deposits. At times, investors have enjoyed substantial growth by joining these funds. Usually, the interest was far higher than what was being offered by banks on traditional savings accounts.

"The popularity of Internet wealth management products has remained intact, despite the recent reallocation to shares," Plowright said.

"Other Internet products, such as peer-to-peer lending (which involves individuals or small companies borrowing money from online investors), have also seen strong growth, although high-profile defaults have raised concerns about the potentially risky nature of these investments," he added.

Li Xiang contributed to this story