Why are speculators retreating from China's A-share market?

Despite the general abhorrence of stock speculation, it has played a lubricant role in the stock market and excessive dampening of speculation has deprived the Chinese stock market of its vibrancy, remarks Li Zhenning, chairman of the Shanghai Rising Fund.

After five years of a bearish market, the A-share market still lingers at the bottom. One major reason is excessive curbing of speculation has put a damper on the development the A-share market, Li continued.

"If there is no windfall in the stock market, why do smart investors want to enter the market," says Li.
One investor noted that due to inactive market trading, it is very hard to find sustained rallying points in the market. As a result, stock has played an increasingly smaller part in his investment portfolio.
Yang Feng (pseudonym) remarks that at present, the market fluctuates too quickly and trading is inactive, making it very difficult to obtain short-term gains.

"Due to investment loss, many short-term speculators have gradually left the A-share market," says Huang Subin, manager of a private equipment fund. Instead, speculators have switched to stock index futures, commodities futures, and arbitrage.

Huang remarks that one major reason for the retreat is the decrease in the market fluctuation, which greatly reduces profit-making opportunities.

Wind statistics show that as of July 12, the 12-month fluctuation of Shanghai stock price index only reached 18.84%, compared with a 41.96% 12-month fluctuation rate as of December 31, 2008.
Li, who is also chairman of Sinowise Investment, points out that "The regulator doesn't have adequate understanding of the function of speculators and excessive curbing of the latter's activities has induced the market into an abnormal state."

The regulator's policy is to push value-oriented investments and dampen speculation in new shares, concept shares, and shares with high PE ratio. Under the policy, the regulator curbs short-term concentrated stock investments.

Meanwhile, the turnover rate of the A-share market is in decline.

A market player says that the stock market needs not only value-oriented investors like Warrant Buffett but also speculators, who play an indispensable role in enlivening market trading.