Chinese investors feel ‘trapped in the stock market’

28-Jul (Reuters, via BusinessInsider) — Mrs Zhu is just the type of investor the Chinese government should worry about as it tries to engineer a turnaround in the country’s stock markets, whose massive swings have heightened fears for the country’s financial health.

One of millions of retail investors trapped by the market crash in June who prefer to hold losing positions rather than take a loss, Zhu is just waiting for indexes to rise so she can sell.

“I will sell all my shares tomorrow if there is a chance,” said the government clerk, who almost hit the sell button last week after markets had recovered somewhat from June’s slump. But because she was still set to take a loss, she held on.

“I am pretty sure that if the government does not come to rescue us, the situation will get much worse,” she said.

Zhu’s way of thinking is so common there a Chinese phrase for it. “Tao lao” once meant being captured by a lasso, but is now most commonly used to mean “trapped in the stock market”, which implies an investor cannot sell out of a losing position.

…For Beijing, the biggest worry is that investors who were once patient are now so rattled by the big market swings that they are ready to accept losses just for peace of mind.

“Yesterday all my stocks hit limit down and I lost 20 percent of my money. Today all my stocks fell limit down again!” said student Liu Fangrui.

“I managed to sell them all at a loss today, and so I lost 320,000 yuan in two days. I don’t have confidence on the market any more. I don’t want to get into the market again.”

[source]