Trump’s Rise and Implications for China’s Small-Cap Stock Investors

Donald Trump’s win in the U.S. presidential election created an interesting scenario in China’s stock market. Some companies, like Wise Soft Co. Ltd. and Sichuan Development Lomon Group (SDLomon), saw a sudden increase in their stock prices. These stocks became known as “Trump concept” stocks because their names sounded like “Trump wins” in Chinese.

For example, SDLomon saw its shares jump by 107.4% in just ten days after October 23, with a turnover rate exceeding 160%. This surge was largely influenced by livestreamers and social media, rather than any real changes in the companies themselves. Investors were swayed by the buzz and decided to jump in.

These “Trump concept” stocks, mostly made up of small-cap shares, saw a significant uptick during a broader market rally in China from late September to late November. Small-cap stocks are known for their volatility and tend to have a market capitalization below 3 billion yuan.

Indices tracking small and mid-sized companies surged by an average of 40% during this period, outpacing the gains of larger-cap indexes. This boom coincided with a large number of new, inexperienced investors entering the market, with millions of new trading accounts opened in October alone.

Many of these new investors are turning to short-video platforms like Douyin for investment advice. Influencers on these platforms have the power to sway their audience into making investment decisions, often without fully understanding the risks involved.

Despite warnings from experts, many novice investors dived headfirst into the market, often using borrowed money to buy stocks. This reckless behavior led to substantial financial losses as investors chased quick profits without a solid investment strategy.

Regulatory authorities have taken notice of the speculative trading and potential market manipulation fueled by social media influencers. Actions have been taken against individuals and stocks that have shown signs of abnormal trading activity, in an effort to protect investors from falling into risky situations.

Moving forward, experts stress the importance of making informed investment decisions based on sound financial knowledge rather than following the crowd. It’s essential for investors to understand the risks involved in the market and not be swayed by hype or social media influence when making investment choices.