Cover Story: Livestreamed Stock Tips Worry Regulators as Novice Investors Rush In
By Yue Yue, Quan Yue and Han Wei
While livestreaming and social media have made it easier for stockbrokers to attract clients and offer trading advice, regulators are worried that these platforms are luring in inexperienced investors and making them prone to impulsive financial decisions.
“The pace is impossible to resist,” says Li, an executive at a mid-sized securities firm in central China. Each morning, he begins by checking the company’s livestream rooms, reviewing backend data and monitoring popular stock market streams.
To keep up with changing times, Li’s brokerage hired dedicated livestream staff and urged employees to get involved. “The A-share ecosystem has been transformed completely,” said Li, who started in the 1990s and now oversees his company’s brokerage business. “The financial industry’s traditional barriers — like the need for specialized education — have been shattered.”
Driven by government stimulus, China’s stock market has rebounded strongly since late September, after nearly two years of sluggish performance. The rally has attracted new investors, with Li’s firm seeing a wave of retail investor accounts opening. Almost all of these were created via online platform referrals.
“I even had staff on duty over the National Day holiday, but we didn’t see a single person — everything was handled online,” Li said.
The Shanghai Stock Exchange recorded 6.84 million new individual accounts in October 2024, the third highest month on record, nearly five times the monthly average for the first nine months of the year and a rate only outpaced by April and June 2015, just before the market crash.
Most of the recent trading accounts were opened online, often through short video platform livestreams.
This new generation of investors adopts a different approach to buying A-shares from previous ones. Brokerage profiles show that more than 70% of the new accounts were opened by people born in the 1990s and 2000s.
Zhang Xiaoyan, deputy dean of Tsinghua University’s PBC School of Finance, said investors born after 1995 often lacked practical experience and rely heavily on social media and online searches for financial information. “Many simply follow recommendations from social media, with little to no fundamental analysis or financial knowledge,” a Beijing-based private equity fund manager told Caixin.
According to Zhu Ning, a finance professor at Shanghai Jiao Tong University, many inexperienced investors are drawn to attention-grabbing stocks. “The easier information is to access, the more it influences them. Livestreams often use provocative language that fuels their greed: ‘I don’t need to understand finance — just follow the leader, and I’ll make money.’”
Before Donald Trump’s victory in the U.S. presidential election, Shenzhen-listed Wise Soft and SDLomon saw a surge, hitting consecutive daily limits, simply because their names in Chinese sound similar to “Trump wins”. Despite the lack of logic, investors jumped in after watching viral Douyin videos.
While experienced investors remained cautious in a volatile market, many newcomers rushed in, taking out loans to buy stocks and prompting brokerages to issue warnings about the risks. The outcome has been harsh. Many novice investors lost both principal and interest within a month. “This was greater fool theory at play,” said one young investor. “No one thinks they’re the fool until it’s too late.”
The uninitiated tend to favor popular stocks and short-term trades, particularly small and mid-caps. During the rally from Sept. 24 to Nov. 20, the CSI 1000 and CSI 2000 indexes, which track small and mid-sized companies, saw average gains of 40.30% and 40.72%, respectively, with turnover rates exceeding 150%. In comparison, the large-cap CSI 300 index posted a more modest gain of 28.95%, with a turnover rate of 71%.
Speculation in small-cap and underperforming stocks has often been linked to insider trading and market manipulation in China’s A-share market. From Nov.11 to 15, the Shenzhen Stock Exchange took regulatory action against 270 cases of unusual trading, including intraday price manipulation and false orders.
Zhu said the prevalence of herd behavior reflects the large number of retail investors in China’s stock market. “We need to improve regulatory practices and make retail investors more aware of market risks,” he said. “China’s stock market still has a long way to go towards institutionalization.”
Social media frenzy
Yao Pei, chief analyst at Hua Chuang Securities, found the recent trading boom originated from short video platforms.
According to QuestMobile, the big data intelligence provider, as of June, China had 989 million monthly active short-video users, averaging 60.7 hours a month, or about two hours a day. Douyin, owned by ByteDance, had 780 million monthly active users, while Kuaishou had 427 million.
Although social media draws a wide audience, there is no data on how many users actually invested. Data from ByteDance’s marketing platform, Ocean Engine, showed that from Sept. 11 to Oct. 22, Douyin users discussing “A-shares” were mainly from first and second-tier cities, aged 18-40, and predominantly male. This matches the new client profiles reported by brokerages.
Yao said social media accelerates the spread of information and amplifies emotional contagion, influencing market expectations. Many new investors simply follow the advice of influencers without considering fundamentals.
This has drawn regulatory scrutiny. Douyin influencer “Big Blue,” who had 10.38 million followers, was banned from the platform after urging his viewers to go all-in on a specific stock, which Douyin said broke the law. In one video, he boasted about his ability to drive up the price of a small-cap stock.
Big Blue’s influence on stock prices is still under investigation but analysts have warned of the potential for speculative trading. If a livestream with 50,000 viewers persuades 10% of them to invest 10,000 yuan each in a particular stock it results in 50 million yuan ($7 million) in capital. If numerous livestreams push the same stock, speculative capital could easily surpass 100 million yuan.
For example, SDLomon, one of the stocks promoted by livestreamers, surged 107.4% over 10 trading days from Oct. 23. During that time, individual investors accounted for 44.6 billion yuan in transactions, representing 91.2% of the stock’s total trading volume, market data showed.
Since November, three small-cap stocks in the A-share market have been suspended for inspection after soaring in value, including HOB Biotech Group Corp. Ltd., listed on Shanghai’s STAR Market. HOB gained 258.32% between Oct. 31 and Nov. 8, topping the market after hitting the daily limit for seven consecutive trading days. As of Oct. 31, the company had a market value of only 2.4 billion yuan, ranking 480th among the 578 STAR Market stocks.
Regulators often scrutinize highly volatile stocks for signs of market manipulation. The Securities Law explicitly bans such practices, including spreading false or misleading information to influence investors or making public recommendations while engaging in contrary trades.
New technologies and business models have made supervision more difficult. “In the past, investigations were almost always conclusive — gathering evidence was challenging but feasible. Now, even after lengthy investigations, it is often difficult to find clear evidence of market manipulation that violates regulations,” said a securities regulatory official.
Regulatory scrutiny
The rise of short video and livestreaming has made regulators’ efforts to rein in online financial violations even more complicated.
According to the China Securities Regulatory Commission (CSRC) regulations, offering paid securities investment advice requires a business license. Unlicensed individuals providing such services are acting illegally. Even licensed entities can only advise designated clients and are prohibited from making public recommendations through mass media or online platforms.
“CSRC rules clearly prohibit public stock recommendations by anyone, licensed or not. How have platforms like Douyin and WeChat allowed such blatant violations to go on for so long?” one investor asked on social media.
Industry statistics show that at the end of 2022, the securities sector employed 30,255 people, most of whom were sales personnel. Only 3,603 held investment adviser licenses. Only these licensed advisers are qualified to provide stock investment advice via livestream. On Douyin alone, however, the number of accounts offering stock-related livestreams far exceeds this.
On Oct. 11, Douyin’s Security Center reported handling more than 3,600 stock-related accounts for violations and removing more than 15,000 pieces of non-compliant content. Violations included urging people to invest in specific stocks and using private messages or group chats to promote off-platform “illegal stock recommendations” or scams.
WeChat’s short-video channel recently updated its rules on financial livestreams. Hosts providing securities-related content must hold a securities qualification and are prohibited from offering specific investment advice or forecasting, according to the new rules.
Regulators have zoomed in on companies that specialize in securities investment advice. Since early 2024, 16 local securities regulators have fined 31 securities investment advisory firms 43 times for irregular online operations. That is nearly 40% of the 78 companies licensed for securities investment advisory business.
Offenders include industry leaders such as Zhejiang RoyalFlush Cloud Software Co. Ltd. and Shanghai Jiufang Cloud Intelligent Technology Co. Ltd. According to the financial report of Shanghai Jiufang’s parent, the company engaged in extensive brand promotion on social media platforms such as Douyin and Xiaohongshu during the first half, operating 488 accounts amassing 46 million followers by the end of June. Its chief investment adviser, “Master Hong,” has 2.26 million followers on Douyin.
In the first half, Shanghai Jiufan livestreamed for 23,466 hours. On average, the company streamed 130 hours a day across a number of platforms.
Blurring boundaries
China has stopped issuing securities investment advisory licenses, and the industry is facing increased competition as brokerages and fund companies start to launch their own investment advice services, eroding the market for traditional securities advisory firms.
In 2022, 75 advisory firms that released financial results reported total revenue of 14 billion yuan, but only netted 7.42 million yuan in profit. Nearly half their revenue was generated from selling securities investment software.
“The industry is in an awkward spot,” said a brokerage analyst. “Securities firms and mutual funds have a clear advantage with comprehensive services. Advisory firms can’t profit from legitimate advisory work, so they turn to recommending stocks and selling software, often crossing regulatory lines.”
The core issue lies in the narrow business scope of advisory firms, making it hard for them to adapt. Moreover, the market is dominated by small retail investors, pushing institutions to pursue quick profits instead of sustainable practices.
In 2022, only half of the licensed securities investment advisory firms were profitable. The top 10 made up 54% of the industry’s revenue, with leading firms taking most of the profits.
As industry concentration rises and regulations tighten, smaller advisory firms are likely to exit the market, analysts said.
Contact reporter Han Wei (weihan@caixin.com)
caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Global Neighbours is authorized to reprint this article.
Image: chayantorn – stock.adobe.com