Global Economics

The Roar of the Whisper Stocks


Hot tips—whether well-researched or not—are fueling a buying spree by small investors in China

China's remarkable bull run has changed the lives of many, but perhaps none so much as that of Wang Xiujie. The bespectacled former bank clerk transformed himself into a stock market maven called Daitou Dage, or Big Brother Leader, a self-proclaimed "professional speculator" who "made a killing" in stocks, bonds, futures, stamps, and antiques. The 33-year-old tapped out an earthy, profanity-laden blog that dispensed investing tips to China's swelling ranks of red capitalists. By this spring, he had become one of China's most popular bloggers, logging 3.4 million hits from February to July by Wang's count. In a photo on his Web site, Wang poses as a James Bond wannabe, complete with tuxedo and pistol. But instead of 007, he fancies himself "777," which in Chinese sounds like "rise-rise-rise." And that's exactly what Wang predicted the market would continue doing.

Unfortunately for Agent 777, it seems he never had a license to make a killing. On July 26, the China Securities Regulatory Commission announced Wang had been arrested on charges of running more than a dozen illegal online investing clubs, which had netted him more than $1.3 million. Nearly 1,000 people paid subscription fees to receive buy and sell recommendations from him via instant messages, according to a CSRC statement. Attempts to locate Wang or his lawyer were unsuccessful, but in his last blog entry, dated July 1, Daitou Dage challenged allegations that his tips had caused people to lose money.

Wang's blog is typical of the kind of place mainlanders look to for guidance on investing these days. As the number of trading accounts in the country has jumped 28%, to 95 million, so far this year, the benchmark CSI 300 index has shot up 110%. But rather than boning up on concepts such as price-earnings ratios or dividend yields, many investors turn to putative experts like Wang. China today is awash in CNBC-STYLE TV shows with names such as Securities Live and Finance Under Heaven, which trot out investment analysts and throw up snazzy charts and other graphics. Meanwhile, the Web is home to Money Dragon, Great Wisdom, and myriad other investing sites, as well as countless bloggers such as "The Godfather of Stocks" and "Golden Stocks King." "That environment provides the soil to set yourself up as a blogger or a pundit where the best-sounding story is the most authoritative," says Fraser J.T. Howie, who manages the China portfolio for brokerage CLSA Asia-Pacific Markets. "In the middle of a raging bull market, good research and meaningful analysis just don't matter."

OVERWORKED REGULATORS

To be sure, mainland brokerages publish plenty of research, the quality of which has improved steadily. But most small-time traders find these reports impenetrable. "I read them, but quite honestly, I don't understand them," says Xu Wenjie, a 22-year-old who works at a travel agency in Shanghai. In June he pumped $460 into a single stock—a hydroelectric power company—but the value of that investment has since fallen to $350.

The perception that the little guys are at a disadvantage to high-powered investors is sure to create a continuing audience for Internet tipsters. "They listen to those who pretend to have better information," says Tian Rencan, CHIEF EXECUTIVE of Fortis Haitong, a fund management company in Shanghai. China's securities watchdog says it's trying to protect unwary citizens from the likes of Daitou Dage, but the agency already has its hands full trying to combat such problems as insider trading and misleading or incomplete financial disclosures from listed companies. And while Wang may have been silenced, others will surely emerge to take his place. As Daitou Dage bragged online: "People say I'm insane, but there are many insane people investing alongside me."

Balfour is Asia Correspondent for BusinessWeek based in Hong Kong. Xiang is a reporter in BusinessWeek's Hong Kong bureau.

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