Chinese retail stock investors once believed domestic equities markets were a chance to cash in on the economic growth miracle of the century, but now fear they are pouring their savings into a bottomless money pit.
The country's key stock market indices slid to a four-year low in November, ignoring improved economic indicators and increasingly desperate pleas from the country's regulators that now is a golden opportunity to buy low.
The trouble is many market watchers think the Shanghai Composite Index has further to fall.
"I don't think this is the bottom," said David Cui, China strategist for Bank of America Merrill Lynch, adding that markets had been buoyed artificially high during the recent party congress that saw a new generation of leaders take the reins of power.
At the root of the problem is the half-reformed condition of China's bourses.
On one hand, speculators accustomed to gambling on policy moves by the central government have been disappointed by Beijing's refusal to pour more cheap cash into the economy like it did during the 2008/2009 global financial crisis.
On the other, value-oriented investors are still put off by enduring market distortions that favour the interests of issuers over ordinary shareholders.
In the absence of either more stimulus or more reform, market observers say there is little reason to look for a sustained rebound in domestic indexes in 2013.
Putting additional negative pressure on the index in the short term is the fact that a net 190 billion yuan ($30.51 billion) worth of locked up shares held by key investors are set to be freed up for sale in coming weeks.
THE MONEY PIT
The Shanghai exchange, considered the most significant indicator of market sentiment by most mainland investors, fell through the symbolically important support level of 2,000 points on Nov 27. It has lost 4.9 percent this month alone, leaving it down 10 percent for the year and on track for its third-straight annual loss.
Many investors had previously assumed that Beijing would step in to defend this line in sand by ordering state-controlled asset management companies to start buying up shares.
It did not, and the index remained below 2,000 for the rest of the week - the first time the SSEC has traded below 2,000 for multiple days since February 2009 - driving sentiment to new lows.
Mainland tickers with dual listings in Hong Kong, which have historically traded at a 20 percent premium to their offshore counterparts (H shares), are now trading at a discount.
The China Enterprises Index of top Chinese listings in Hong Kong has gained 7 percent so far this year, while the benchmark Hang Seng Index, heavily exposed to activity in China, has surged around 20 percent.
"How many people have to jump out of buildings before the state steps in to support the market?" wrote an investor posting under the tag "Fulushou Yuqi" on microblog Sina Weibo.
"How can the market be so cruel?"
But despite robust economic growth, Chinese stock markets have been cruel to mainland investors for years.
A study of 8,438 Chinese households by China's Southwestern University of Finance and Economics published in May found that 77 percent of those who had invested in Chinese stocks failed to see a profit.
Disillusioned, Chinese retail investors, who account for around 80 percent of the transactions on domestic exchanges, have begun seeking other channels for their money.
At the end of October, 44 percent of trading accounts with positions had been dormant for a year, compared to a mere 2 percent at the end of 2007, wrote Jing Ulrich, chairman of global markets China at JP Morgan in a November research note.
"(This) may be a sign that retail investors have simply lost interest in the markets."
At the same time, thanks to the successful introduction of instruments like bond funds and high-yield wealth management products, retail investors have an increasingly wide selection of alternatives to stocks to choose from.
Wealth management products, for example, have consistently produced inflation-beating returns, and most retail investors believe they are tacitly guaranteed by the state; neither is true of stocks.
Reuters latest monthly fund poll on Friday showed Chinese fund managers further reduced their recommended equity weightings in November, while suggesting increases in bond holdings.
END OF AN ERA
As a rule, those who have profited from Chinese equities markets have done so by betting on policy winds, not economic or company fundamentals.
Economists argue that Chinese equities tend to react most positively to monetary easing or news that Beijing will increase spending in a particular sector such as clean energy or rail.
Such policies helped drive the SSEC up 80 percent in 2009, while the CSI300, which tracks China's largest-caps in Shanghai and Shenzhen, gained 97 percent over the same period.
But there is little sign that another massive government spending spree is in the pipeline.
The government has repeatedly warned investors it has no intention of reenacting the stimulus package from 2009, which spurred inflation and saddled the financial system with unsustainably high levels of bad loans, which continue to weigh on the banks in 2012.
Backing up the rhetoric, interest rate swap rates show that markets no longer expect much in the way of monetary easing in 2013.
Officials from the China Securities Regulatory Commission (CSRC) have repeatedly lambasted policy speculators and entreated Chinese investors to buy and hold large-cap high quality shares, arguing that current price-to-earnings (PE) ratios mean that such shares are a bargain.
But analysts warn that low PEs at banks - some of which are trading below their book value - drag down the weighted-average PE of the wider market, masking the real cost of Chinese shares.
"Around 18 companies make up 60 percent of the net income (of listed companies in China)," said Shawn Liu, chief investment officer for AZ Investment in Shanghai.
"So if you look at Shanghai, it's at around 10 times PE; it looks very cheap. But if you took out those companies, or just used a simple average, then Shanghai is probably at more like 25 PE and Shenzhen at 27. Is that cheap? I don't think so."
DISATISFACTION WITH REFORM
And then there is the question of Beijing's commitment to further reform.
With the leadership change in mind, the CSRC has proceed with caution against the stock markets in 2012, focusing mainly on incremental reforms, cutting transaction costs and taxes, and expressing rhetorical support.
This has done little to fan market sentiment, and economists say China needs to do much more before the investor community Beijing wants - namely fundamentals-oriented investors looking for long-term growth - will come back to the markets.
"Before we're going to see any upward movement, China needs to make a thorough change to problems like IPOs and dividends for investors," Chen Yi, senior analyst at Xiangcai Securities in Shanghai said.
"At the moment investors have paid out money but aren't getting anything back, so it's not going to work."
© 2015 Thomson/Reuters. All rights reserved.