The Growing Risk Behind China's Bull Market and the "Beggar Gang" Problem

As we approach the much-anticipated October 12th policy announcement, investors are waiting to see if the Chinese government will introduce stronger stimulus measures to continue driving the bull market. But behind the euphoria in the stock market lies a dangerous trend that could undermine these efforts—one that regulators are only just beginning to uncover.

Recently, Chinese banks and regulators have raised red flags about an alarming number of young, cash-strapped individuals using loans, credit cards, and high-interest platforms to gamble on the market. These new retail investors, whom I call the "Beggar Gang" (丐帮), are made up of 90s and 00s generations—the ones with no assets, no homes, no cars, no plans for marriage, and no tangible long-term commitments. Many of them work at the bottom rungs of society, such as delivery drivers, ride-hailing drivers, and factory workers. These people are taking desperate measures, borrowing from banks and platforms like Huabei and Jiebei to pump money into the stock market.

Their thinking is simple: “If I win, the money is mine; if I lose, it’s the bank’s problem.” They are leveraging the system’s low-interest loans, some as low as 2%, while others are risking it all by taking loans with interest rates as high as 36% per year from shadow lenders. For them, if the market goes up, they can pay off the loans and pocket the profits. But if the market crashes, they plan to simply default, as they have no assets or future obligations. To them, being blacklisted or having bad credit is inconsequential because they are already resigned to a life of 躺平, or "lying flat," a popular term for opting out of traditional societal expectations like buying property, marriage, and pursuing higher education.

This reckless behavior has caught the attention of China's financial regulators. Banks are becoming increasingly worried as these young investors take out consumer loans and divert the funds into the stock market. They’ve started monitoring accounts more closely, and in some cases, are threatening to cancel loans when they discover that the borrowed money is being used for unauthorized purposes like stock speculation. However, despite the warnings, loan brokers are capitalizing on the frenzy, encouraging even more people to "take advantage of the bull market" by offering ways to bypass banking oversight and continue funneling borrowed money into stocks.

This kind of behavior poses a major risk, not just to the individuals but to the entire financial system. If the market continues to rally, it might mask the problem for now. But if it crashes—or even dips—it could trigger a wave of non-performing loans that would destabilize the banking system. This is particularly concerning as these young investors are playing with leveraged money, and any losses they incur will be magnified by the debt they owe.

The October 12 conference could be a turning point. The government knows that it needs to keep the momentum going to prevent another selloff like what we saw on October 8. But if they push too hard with aggressive stimulus measures, they risk attracting even more of these "Beggar Gang" investors who are willing to take reckless bets. On the other hand, if the government’s policies fall short again, it could lead to a mass exodus from the market, further eroding confidence and creating a downward spiral for both A-shares and Hong Kong stocks.

As an investor, I’m personally worried about these dynamics. It feels like the market is walking a tightrope, with expectations riding high and any misstep from the government potentially triggering another wave of selloffs. If you’re betting on the market rising, like I am with my YINN call options, it’s crucial to understand that there’s more at stake than just stock prices. This is about managing risk and being prepared for a market that could either rally on renewed stimulus or collapse under the weight of reckless speculation and debt defaults.

In my opinion, we should all be prepared for the worst, even if we hope for the best. The "Beggar Gang" problem could put a strain on the effectiveness of the government's policies. If they can’t find a way to rein in these risky practices and prevent the exploitation of financial loopholes, we might be in for another round of disappointment—another selloff.

In conclusion, while it’s tempting to keep betting on a rising market, we need to be mentally prepared for a reversal. If the policies fall short, we could see another round of panic selling, especially if the "Beggar Gang" defaults en masse, triggering a financial ripple effect that could take the wind out of the market’s sails. If you’re like me, holding positions, you should prepare for volatility and have a clear exit strategy in case the market heads south.

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