By Hu Yuanyuan (China Daily)
Updated: 2007-08-07 11:44

But the China Securities Regulatory Commission (CSRC) is determined to straighten things out. In the first half of the year, the securities watchdog received 1,638 complaints on various operations, says CSRC spokesman Liu Xinhua. It has investigated 524 of them and detected 11 cases of unlicensed securities consulting firms on the Internet. Six of those are suspected securities crimes and have been handed over to the Public Security Bureau.

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The Internet is the major source of all such illegal operations, Liu Xinhua says. "The suspects are using websites, blogs and QQ to pass on 'tips' to investors and charging fees in the name of memberships, training, services and/or consultancy."

Apart from monitoring and striking at illegal securities operations, educating stock investors is also very important, Liu Xinhua says.

But experts don't see that as an easy job. The popularity of informal fund managers is fuelled to some extent by too many newcomers to the stock market, says a China-CITIC Securities analyst.

"Since the market has been bullish for a long time, many small investors think they can make easy money by just buying any stock. What they don't realize is that playing in stocks needs professional knowledge. Phoneys have a field day because licensed analysts cannot meet the demand of new investors," the analyst says.

The major sources of small investors' knowledge about stocks are financial books, TV programs, blogs and seminars. "It's really difficult to understand the complicated techniques and terms (of the stock market) in a short time," says Li Qiang, an expert with a company. "And suggestions on financial TV programs are usually very general. They can hardly give us practical guidance."

Investors discuss market movements at a bourse in Beijing. The Shanghai Composite Index has catapulted from 2715 on January 4 to above 4600. [newsphoto]

The situation can change only if investors change their mindset, says the China-CITIC analyst.

An Everbright Bank report published recently shows the majority of domestic investors lack professional knowledge. If that's the case, they should either buy mutual funds or approach professional firms to manage their wealth, says Gao Huiqing, an expert with the State Information Center.

In fact, after the sudden, but temporary, slump in the stock market that began on May 30, an increasing number of investors started opting for mutual funds. "The value of my stocks shrunk by 40 percent in early June, whereas my fund assets dropped only 16 percent," says Wang Juan, a 29-year-old college teacher. She now plans to put most of her investments in open-ended funds.

The management fees that professional traders charge for funds is only about 2 percent. Hence, they are gaining popularity among small investors. For instance, subscriptions for a new fund launched by a joint venture of Bank of Communications and Schroder on August 1 crossed 30 billion yuan ($3.96 billion), more than twice its expected target of 12 billion yuan (US$1.58 billion).

Small investors can also choose wealth management products, which usually involve lower risk compared even to mutual funds. Some products promise a minimum return, too.

But the decision has to come from the new investors eager to make some fast money.

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