2024-10-31 17:25:00
Donald Trump is turning heads, and not just in the United States. In China too, his name has pushed individuals to strange behavior… on the stock market.
Since Monday October 28, the shares of a small company called Wisesoft have increased by more than 10% on the Shenzhen Stock Exchange. It is not the financial results of this computer software specialist which justify this enthusiasm: they are in free fall and the company recorded 21.73 million euros in losses in 2023. The only attraction of Wisesoft for local investors: in Chinese, the company name is phonetically close to the expression “Trump wins big”, underlines the South China Morning Post, Wednesday October 30.
They see homonyms and homophonies everywhere
Homonymy as the only reason to invest? This is not the first time that Wisesoft’s good stock market performance seems to be linked solely to the Republican candidate’s news across the Atlantic. At the end of June, its action jumped the day after the debate that he won against President Joe Biden, then still a candidate for his succession. Stock traders also flocked to Wisesoft in 2015, when rumors about Donald Trump’s candidacy announcement began to gain momentum.
If this stock market strategy may seem, to say the least, out of touch with economic realities, “it is not necessarily surprising, and the history of Chinese financial markets is full of examples of the same kind”, underlines Johannes Petry, specialist in political economy. and Chinese financial markets at Goethe University Frankfurt.
Staying in the Trumpist register, the Chinese specialist in acoustic components Goertek experienced a sharp surge in its share price in July after the first assassination attempt against Donald Trump. The reason: the Chinese name of this company – phonetically “ge er” – is a homonym for the Chinese expression which means “cut ear”. A capillotracted but obvious reference to the injured ear of the Republican candidate during this assassination attempt.
But Donald Trump is not the only one to inspire stock marketers. In 2024, groups whose names contain a reference to dragons are on the rise. And for good reason: it was the year of the dragon in the Chinese zodiac.
The words of President Xi Jinping are also eagerly listened to by these investors. Thus, on October 22, during an economic speech, Xi Jinping asked himself “how many times in a lifetime we can seize the opportunity to fight.” A reference to a “famous Chinese phrase” which pushed stock marketers to bet on Edadoc Technology, a company whose name in Chinese means “fight for technology”, explains the South China Morning Post.
Immature individual investors?
This incredible hunt for homonyms and homophonies is mainly the work of individuals and not of institutional investors, such as banks. “There are 200 million active investors in Chinese financial markets, more than the population of France, Germany and the United Kingdom combined,” explains Johannes Petry. And a significant portion of these stock traders are small holders.
“There is a social reason for this. Social safety nets are weak in China, and the authorities have long encouraged the population to invest in the stock market to compensate for the absence of a public pension system. Not to mention the new class average person who is looking for ways to invest their money,” says the economist. State incentives have not, however, been accompanied by sufficient training programs in stock market finesse and the art of speculation.
These bets on Wisesoft or other companies with evocative titles would therefore reflect a “Chinese financial market which is still lacking in maturity”, asserts Wang Zichen, a financial analyst interviewed by the South China Morning Post. After all, it only reopened its doors in the 1990s, after a long period of hostility to the Chinese Communist Party.
Today, this activity would still be that of millions of individuals placing their buy and sell orders from their phone between two work meetings at the office or in the evening on their sofa.
Trump, king of “meme stocks”?
But that’s only part of the story, says Maxime Raturat, financial markets analyst for XTB, a stock broker. For him, there is nothing irrational about the Wisesoft affair: it would be a school of “meme action” (“stock meme”). Wisesoft would be the Chinese side of the Gamestop affair which hit the media headlines in 2021.
Also readGameStop: when stock market Internet users put down the chatter of speculators
Gamestop is this video game company which was no longer worth anything or almost nothing on the stock market, against which major institutional speculators were attacking… and which had found unexpected support among millions of individual investors who had organized themselves on the Internet.
A “meme stock” “has three constituent characteristics: a funny or familiar name – here the association between Wisesoft and Donald Trump –, a company which is experiencing significant financial problems and strong liquidity [c’est-à-dire qu’il y a beaucoup de transactions autour de cette valeur, NDLR]”, lists Maxime Raturat. For him, the Wisesoft affair ticks them all.
The typical scenario in the case of a “meme stock” is as follows: institutional investors begin to speculate against a company perceived as fragile on the stock market. They protect themselves against the risk of loss with an automated system that plans to start buying again if the trend reverses, and if the price of the target stock rises.
This is where the armies of small investors come in who will buy the shares of the company in difficulty which are no longer worth anything or almost nothing – here Wisesoft – to counter the strategies of big speculators. And if these simple individuals manage to raise the stock, the automated mechanism of institutional investors will kick in to avoid losses and they will also acquire the shares of these small companies, amplifying the rise in the stock. Final act: small holders can then resell their securities, making a profit in the process.
This is what happened with Gamestop, and also with Wisesoft and other similar actions in China, according to Maxime Raturat. “The great specificity in China is this attraction for homonyms,” summarizes Maxime Raturat.
Which does not mean that these individual investors are all smart and that the image of Sunday stock marketers unfamiliar with the subtleties of finance is a myth. The latter exist, but there are also others very focused on “meme action”, which has exploded in recent years, and play precisely on the appetite for homonyms among small Chinese carriers to identify opportunities, according to the financial analyst. And for them, Donald Trump is a meme not to be missed.
1730477805
#China #stock #marketers #keen #American #candidate
**Interview with Johannes Petry, Political Economy Specialist at Goethe University Frankfurt**
**Editor:** Thank you for joining us today, Johannes. The recent surge in Wisesoft’s stock prices has been quite remarkable, especially considering the company’s dismal financial performance. Can you explain why investors are so drawn to this stock?
**Petry:** Absolutely. The spike in Wisesoft’s share price primarily stems from its phonetic resemblance to the phrase “Trump wins big” in Chinese. It’s not uncommon in Chinese financial markets for investors to get excited over homonyms, especially when they align with popular cultural or political figures.
**Editor:** It seems almost irrational to invest based on such a tenuous connection. Is this a common behavior among individual investors in China?
**Petry:** Yes, it is. Chinese stock markets are notably influenced by individual investors rather than institutional ones. With over 200 million active investors, many are looking for quick gains through trends and memes rather than fundamental analysis. This phenomenon reflects the relatively nascent state of the market since it only reopened in the 1990s, after decades of political hostility toward capitalism.
**Editor:** Speaking of trends, you mentioned that this isn’t the first time Wisesoft has seen such behavior linked to Trump. What does this tell us about the influence of current events on the stock market in China?
**Petry:** It highlights that Chinese investors are very responsive to global cultural and political currents, especially around figures like Trump. This kind of speculative trading can create bubbles, which can lead to instability if the underlying business doesn’t improve. It’s a risky approach, driven by social dynamics rather than economic fundamentals.
**Editor:** Maxime Raturat referred to Wisesoft as a “meme stock,” akin to the Gamestop situation we saw in 2021. How do you see this evolving in the future?
**Petry:** The concept of “meme stocks” is indeed gaining traction globally, and Wisesoft exemplifies this trend within the Chinese context. As more individuals engage in trading based on social media and viral trends, we could see similar events in the future. However, it’s essential for these investors to recognize the risks involved and to develop a more grounded understanding of financial markets.
**Editor:** do you think this trend impacts the overall maturity of the Chinese financial market?
**Petry:** Definitely. The current situation underscores the market’s immaturity. As more individuals invest based on whims rather than sound economic practices, it highlights the need for better financial education and more robust regulatory frameworks. This will be crucial for the long-term stability and growth of the market.
**Editor:** Thank you for your insights, Johannes. It’s fascinating to see how global figures like Trump can impact markets in such unexpected ways.
**Petry:** Thank you for having me. It’s indeed a vivid illustration of the interconnectedness of global markets today.
