Retail Traders Pile Into China Stocks in Dip-Buying Mode

(Bloomberg) -- A bout of frenzied buying from dip-hunting retail traders over the last couple of days has helped spur a rally in Chinese stocks listed in the U.S. after a prolonged selloff.

Net purchases of Chinese technology shares in New York by retail investors in the past five trading sessions topped the $400 million mark, according to Vanda Research. 

The bargain-hunting helped push The Nasdaq Golden Dragon China Index up more than 13% in the past four days, for its best run since late June when Beijing’s increased regulations on technology and education companies added pressure on the shares.    

“Since the regulatory crackdown started, retail investors increased their buying on dips, providing liquidity to institutional investors who were exiting long positions,” Ben Onatibia, senior strategist at Vanda said in a note.

Retail investors though tend to be less predictable than larger institutional investors, casting doubts over any hopes for a prolonged rebound on the stocks.

While retail traders have chased momentum in more speculative names, demand has generally faded for Chinese ADRs as soon as their prices begin rising, according to Vanda, which tracks retail flows in the U.S.

“Retail attitudes towards stocks or ETFs can change over time, but we think demand is more likely to dry up in the coming days,” Onatibia said.

To be sure, the bounce started to fizzle out on Wednesday, with China-link stocks falling as much as 2.1% before closing higher by 0.1% after another lackluster session for tech shares in Hong Kong. A warning by the Securities and Exchange Commission Chair Gary Gensler that “the clock is ticking” on Chinese firms to allow financial audit inspections of risk being delisted, added to the sour sentiment.

Shares of China-based tech behemoths all slumped in New York on Wednesday with Alibaba Group Holding falling as much as 3% and Tencent Holdings Ltd. dropping 2.7%. Despite a positive research report at Bank of America, Pinduoduo Inc. also declined as much as 3.3%.

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