Analysis
The share price of a small Chinese company in financial difficulties has skyrocketed in recent days. The company's only real asset is its name: Wisesoft, which in Chinese sounds like the phrase 'Trump wins big'. Chinese investors are prone to buying shares solely on the basis of a company name.
Issued on: 02/11/2024 -
By: Sébastian SEIBT
An investor observes stock price figures at a stock exchange on September 27, 2024 in Hangzhou, Zhejiang Province of China. © Long Wei, VCG via Reuters
Former US president Donald Trump’s influence looms large, and not just in the United States. In China, his name has prompted some people to make a quirky bet on the stock market.
The share price of a small company that makes air traffic control software, Wisesoft, doubled over the past month on the Shenzhen Stock Exchange, a gain at odds with the company’s lacklustre financial results. It recorded a loss of Є3.5 million, (27.04 million yuan), for the first nine months of 2024.
Wisesoft's attraction for local investors is in its name, phonetically close to the expression “Trump wins big”, notes Bloomberg News.
Homonyms everywhere
It's not the first time that Wisesoft's share price seems to be linked to Trump. At the end of June, the company’s shares surged in the wake of the debate during which Trump outperformed President Joe Biden, then still a presidential candidate. Stock traders also flocked to Wisesoft in 2015, when rumours of Trump's presidential candidacy began to gain momentum.
Picking stocks with conspicuous names makes little economic sense, but in China “it's not unusual", says Johannes Petry, a specialist in political economy and Chinese financial markets at Frankfurt's Goethe University. “Throughout the history of the Chinese stock market it happens quite a lot."
Trump’s name was also involved in the popularity of the Chinese acoustic components specialist Goertek, which saw its share price soar in July after the assassination attempt on the former president in Butler, Pennsylvania.
The reason: the company's Chinese name is a homonym for the Chinese expression meaning “severed ear”, a strained reference to the Republican candidate's ear injured during the attempted assassination.
Chinese investors had a more traditional reason for their stock market picks in 2024, the year of the dragon in the Chinese zodiac, as speculators bought shares in companies whose names contained a reference to dragons.
Investors also pay close attention to the pronouncements of China’s President Xi Jinping. On October 22, during a speech on economic policy, Xi quoted a famous Chinese saying, “How many times in life can one seize the moment to fight?” Afterwards, reports the South China Morning Post, shares of the Shenzhen-listed Edadoc Technology, whose name means “fight for technology” in Chinese, rose sharply.
Immature retail investors?
"Basically the important thing to know about the Chinese stock market is that there are 200 million investors, more than the combined population of France, Germany and the UK," Petry says, adding that most are retail share owners.
There's a societal reason for the large number of small investors, Petry notes. 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.
In addition, “there is growing wealth in a large part of society, in the middle class” which is looking for ways to invest its money, says Petry.
“The government also encourages people to invest in the stock market to contribute to the growth in GDP,” he adds.
According to Wang Zichen, a research fellow at the Centre for China and Globalisation interviewed by the South China Morning Post, bets on Wisesoft and other companies with crowd-pleasing names are a sign that “China’s stock market still lacks maturity, and investors often act irrationally”.
This is perhaps understandable, given that stock markets only reopened in China in the 1990s after a long period in which they were shunned by the Chinese Communist Party.
Today, millions of individuals place their “buy” and “sell” orders from their mobile phones between business meetings or in the evening from their sofa.
Trump’s 'meme' appeal
Maxime Raturat, a financial market analyst for stockbrokers XTB, says that Wisesoft is just another case of a “meme stock”, a Chinese version of GameStop, which made headlines in 2021.
GameStop, a video game company, was worth little or nothing on the New York Stock Exchange until it went viral.
Major institutional investors, including hedge funds, took out contracts allowing them to profit if GameStop’s share price dropped.
Enthusiastic buying by millions of individual investors who organised on social media spurred an unexpected rise of 1600 percent in GameStop shares in January, 2021, before they fell back.
Raturat says a meme stock “has three defining characteristics: an amusing or familiar name – in this case, the association between Wisesoft and Trump; a company experiencing significant financial problems; and, high liquidity”, meaning lots of buyers and sellers of the stock.
For him, Wisesoft ticks all the “meme” boxes.
The typical scenario for a meme stock is as follows: institutional investors start betting against a company perceived as fragile on the stock market. They hope to profit by short selling, borrowing the shares and then selling them on the open market, planning to repurchase them later for less money.
They protect themselves against the risk of big losses with an automated system programmed to start buying the shares again if they rise above a certain threshold – a way to limit potential losses since the goal is to buy back the shares at a lower price than you sold them for.
This is where a multitude of small investors comes in, buying up the shares of the distressed company that are now worth little or nothing to counter the strategies of the big speculators.
And if these individual investors manage to boost the share price, the automated mechanism of institutional investors is triggered, and these large investors also begin to buy, amplifying the rise in the shares.
In the final act, the small investors can then sell their shares, making a profit in the process.
The same process that propelled the rise of GameStop is behind the ascent of Wisesoft and other similar Chinese stocks, according to Raturat.
“The great specificity in China is this attraction for homonyms,” says Raturat.
The growing number of meme shares is driven in part by Chinese retail investors’ faith in the power of a name, Raturat notes. And for them, Donald Trump is a meme not to be missed.
This article has been translated from the original in French.
Former US president Donald Trump’s influence looms large, and not just in the United States. In China, his name has prompted some people to make a quirky bet on the stock market.
The share price of a small company that makes air traffic control software, Wisesoft, doubled over the past month on the Shenzhen Stock Exchange, a gain at odds with the company’s lacklustre financial results. It recorded a loss of Є3.5 million, (27.04 million yuan), for the first nine months of 2024.
Wisesoft's attraction for local investors is in its name, phonetically close to the expression “Trump wins big”, notes Bloomberg News.
Homonyms everywhere
It's not the first time that Wisesoft's share price seems to be linked to Trump. At the end of June, the company’s shares surged in the wake of the debate during which Trump outperformed President Joe Biden, then still a presidential candidate. Stock traders also flocked to Wisesoft in 2015, when rumours of Trump's presidential candidacy began to gain momentum.
Picking stocks with conspicuous names makes little economic sense, but in China “it's not unusual", says Johannes Petry, a specialist in political economy and Chinese financial markets at Frankfurt's Goethe University. “Throughout the history of the Chinese stock market it happens quite a lot."
Trump’s name was also involved in the popularity of the Chinese acoustic components specialist Goertek, which saw its share price soar in July after the assassination attempt on the former president in Butler, Pennsylvania.
The reason: the company's Chinese name is a homonym for the Chinese expression meaning “severed ear”, a strained reference to the Republican candidate's ear injured during the attempted assassination.
Chinese investors had a more traditional reason for their stock market picks in 2024, the year of the dragon in the Chinese zodiac, as speculators bought shares in companies whose names contained a reference to dragons.
Investors also pay close attention to the pronouncements of China’s President Xi Jinping. On October 22, during a speech on economic policy, Xi quoted a famous Chinese saying, “How many times in life can one seize the moment to fight?” Afterwards, reports the South China Morning Post, shares of the Shenzhen-listed Edadoc Technology, whose name means “fight for technology” in Chinese, rose sharply.
Immature retail investors?
"Basically the important thing to know about the Chinese stock market is that there are 200 million investors, more than the combined population of France, Germany and the UK," Petry says, adding that most are retail share owners.
There's a societal reason for the large number of small investors, Petry notes. 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.
In addition, “there is growing wealth in a large part of society, in the middle class” which is looking for ways to invest its money, says Petry.
“The government also encourages people to invest in the stock market to contribute to the growth in GDP,” he adds.
According to Wang Zichen, a research fellow at the Centre for China and Globalisation interviewed by the South China Morning Post, bets on Wisesoft and other companies with crowd-pleasing names are a sign that “China’s stock market still lacks maturity, and investors often act irrationally”.
This is perhaps understandable, given that stock markets only reopened in China in the 1990s after a long period in which they were shunned by the Chinese Communist Party.
Today, millions of individuals place their “buy” and “sell” orders from their mobile phones between business meetings or in the evening from their sofa.
Trump’s 'meme' appeal
Maxime Raturat, a financial market analyst for stockbrokers XTB, says that Wisesoft is just another case of a “meme stock”, a Chinese version of GameStop, which made headlines in 2021.
GameStop, a video game company, was worth little or nothing on the New York Stock Exchange until it went viral.
Major institutional investors, including hedge funds, took out contracts allowing them to profit if GameStop’s share price dropped.
Enthusiastic buying by millions of individual investors who organised on social media spurred an unexpected rise of 1600 percent in GameStop shares in January, 2021, before they fell back.
Raturat says a meme stock “has three defining characteristics: an amusing or familiar name – in this case, the association between Wisesoft and Trump; a company experiencing significant financial problems; and, high liquidity”, meaning lots of buyers and sellers of the stock.
For him, Wisesoft ticks all the “meme” boxes.
The typical scenario for a meme stock is as follows: institutional investors start betting against a company perceived as fragile on the stock market. They hope to profit by short selling, borrowing the shares and then selling them on the open market, planning to repurchase them later for less money.
They protect themselves against the risk of big losses with an automated system programmed to start buying the shares again if they rise above a certain threshold – a way to limit potential losses since the goal is to buy back the shares at a lower price than you sold them for.
This is where a multitude of small investors comes in, buying up the shares of the distressed company that are now worth little or nothing to counter the strategies of the big speculators.
And if these individual investors manage to boost the share price, the automated mechanism of institutional investors is triggered, and these large investors also begin to buy, amplifying the rise in the shares.
In the final act, the small investors can then sell their shares, making a profit in the process.
The same process that propelled the rise of GameStop is behind the ascent of Wisesoft and other similar Chinese stocks, according to Raturat.
“The great specificity in China is this attraction for homonyms,” says Raturat.
The growing number of meme shares is driven in part by Chinese retail investors’ faith in the power of a name, Raturat notes. And for them, Donald Trump is a meme not to be missed.
This article has been translated from the original in French.
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