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Weibo revolution: how social media can move Chinese stock prices

Weibo revolution: how social media can move Chinese stock prices

Chinese social media platforms such as Weibo, Xueqiu and Zhihu increasingly wield the power to move A-share prices, analysts say.

Weibo, the Chinese equivalent of Twitter, is a prominent case in point. ‘Weibo is powerful because it has more followers [than other social media sites]. This is now a different world. Information travels very fast… and therefore share prices are very sensitive to news,’ Mansfield Mok, senior fund manager at EFG Asset Management, told Citywire Asia in an e-mail reply.

Colin Liang, portfolio manager at NN Investment Partners, said that no single site has total dominance – just like in the West a number of major players share the limelight. ‘Weibo is just one of the major information sources to generate public sentiment and represent part of that public sentiment. There are tons of media sites that the public can get information from.’

The media landscape in China has changed rapidly, and it is no longer solely controlled by the government news agency, meaning ordinary people can express their ideas freely. Social media sites have emerged to cater to this new environment.

There are three major ways that social media sites can affect sentiment and move share prices, Liang said.

‘The first type is insider information. If company insiders have leaked private and influential information on Weibo, which should not be allowed anyway, and then if that piece of information is used in trading stocks. The whole action becomes insider trading, which is a breach of securities law,’ he said. In this case, the Chinese Securities Regulatory Commission would step in to trace the person who leaked the information online.

The second way that information might affect the market is when information is shared to the public faster than its official announcement. For instance, Vanke’s chairman Wangshi once published a few comments through Weibo to garner public support before the board of directors’ meetings during the period of negotiation with the firm’s major shareholders. ‘Wangshi was using Weibo to influence the public opinion to vote for him in order to keep his chairman position, while the meeting will be held in two weeks’ time. This is a way to manipulate the market,’ Liang said.

The last way that social media can affect share prices is through unique information sharing, meaning investors share thought pieces on social media sites to analyse a certain company, event or issue. Xueqiu provides this service. ‘Common practice in this profession is that managers are not really reading these thought pieces, but I’m a heavy user,’ said Liang. ‘If investors gather information correctly, do proper analysis themselves, and comply with the regulations, the result could become their own edge.

‘The whole topic of social media sites’ information dissemination affecting stock price movements is a corporate governance issue,’ said Liang, adding that insider information or information sharing faster than official announcement are all potential issues.

Amid all the noise from social media, fundamental analysis will remain crucial to sort the key facts from the market chatter, Liang concluded.

Chinese social media sites at a glance:

• Weibo is the largest Chinese microblog platform, an equivalent to Twitter. The site was launched in August 2009, and it boasted more than 300 million active users as of 2016.

• Zhihu is a Chinese question-and-answer website, similar to the US Quora site.

• Xueqiu is a social media platform mainly used by investors for publishing their opinions about stocks, companies or other major issues affecting the business world.

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