Cover story, issue 392, Nov 3, 2008
Translated by Zuo Maohong
Original article: [Chinese]

In the end, Chen kept her job. Though she had already prepared to search for a new one that black Monday in mid-September, to her relief, her boss in Hong Kong announced that the Beijing office would not close.

Chen's fortune provided some hope in an otherwise gloomy industry. Many Chinese fund managers were still working in fear of being replaced by Wall Street's freshly unemployed, with fund executives insisting that they will have talented staff in the near term.

When Japan's Nikkei Average hit a 26-year low on October 27, money that many Japanese had invested over the past 26 years vanished. Japanese who started investing in the stock market after the age of 30 should have retired or were to retire soon. In times like these, what could they do?

This concern went well beyond Japanese. As the financial storm blew away wealth, jobs, and some people's entire planned futures, many are wondering how to protect what they still have left.

A Crisis For All
"Cut your hand off if it's idle," a scrap of paper stuck on Lao Liu's computer read.

A seller of stock analysis software, Lao Lui has been in the stock market for many years, but never has he suffered bigger losses than this time. With risk always on his mind, he bought shares of big names such as the state aluminium maker Chalco and Construction Bank of China. The fact was, however, even these shares took tragic tumbles.

Upon request, Lao Liu would recommend certain shares to clients. But since early this year, he's mostly heard complaints.

Under the guidance of the scrap of paper, Lao Liu used to sell and buy frequently. But recently he has stopped following his principle – he even barely watches market news any more. The big slump of the stock market since the breakout of the Wall Street crisis has shattered his dreams.

"Everyone's devastated," said Chen. She has worked in the same company with Lao Liu, but jumped ship to an appraisal firm.

Having strived for success in Beijing for many years like Lao Liu, she had saved a considerable amount of money. She began to buy shares since the end of 2006, and increased investment after her first taste of easy profits. Last Auguest she poured her parents' life savings into a Tianjin-based company's shares at 28 yuan each.

As of November 6, it was priced at 4.08 yuan. "I wanted to make more money for my parents' retirement. Who knew this kind of thing would happen?" Chen said.

But she said she wouldn't let her personal finance problems influence her work. Anyway, her clients' situation was no better than hers, she said.

Ma was one such client. Having made good money dealing coal in the 1990s, Ma started his own clean energy development firm in 2001 and had it listed on NASDAQ soon after that. Last year, to prepare for a listing in Hong Kong, he bought a satellite television company there.

The Wall Street crisis disrupted his plans, however. As oil prices slipped from USD 147 a barrel to USD 60, his company's shares tumbled too. The television company was also facing more risk as the shadow of economic trouble lengthened.

Individual and corporate investors then turned their hopes on funds. Yet fund companies themselves were not seeing good days either.

Lao Liu was not the only fan of state giant Chalco, whose share price has unexpectedly dropped by 84% since the beginning of the year. Statistics showed by the end of 2007, 104 fund companies held Chalco's shares. By June 2008, there were still 54 funds holding a large portion of their investment in Chalco's shares. "And now fund managers who hold non-ferrous metal stocks are having big pressure," said the chief of one fund company.

What Kind of Winter?
"As bad as it is, how worse could it get?" Chen said in a mocking tone.

Economists thought differently. The EO recently surveyed 30 major economists in China and found 80% of them believed China's macro-economy would continue falling in the future, bringing private wealth down with it.

Facing an uncertain future, most people and companies shared the mentality of tightening their belt for the hard times.

"Our financial counseling services have been greatly impacted by the secondary market. As all clients have tightened up, our management counseling services have shifted from business development to internal management," said an analyst from Junhe Counseling.

Many companies the EO interviewed said they were preparing for a long winter by reducing costs and other measures.

According to a manager at a domestically listed company who was recently doing field research in Dongguan, China's manufacturing powerhouse, despite optimistic remarks from the local government, he had a feeling that there would be high unemployment in the future.

In fact, the issue had spread to northern cities. An employee of a metal die factory at a Beijing suburb told the EO that his company had laid off some redundant staff, and a high-level manager had already said more layoffs were in the pipeline.

Meanwhile, with their Wall Street dreams shattered, Chinese financial professionals with valuable overseas work experience were returning home.

"We have received many resumes from these people. They were all top students in their primary school, college and graduate school, and had further education overseas, got a great job at an international company, and have had a family there for a couple of years," said a vice president of one fund company.

He recalled a phone call from one such applicant, who said he used to make one million dollars a year and now he would be happy with one million yuan a year. "But one million yuan means a whole year's expense for a small department in a domestic company," he said.

Domestic employees were already feeling the tension. According to the general manager of a fund company in south China, he wouldn't worry the slightest if his fund managers quit, because for every such position there were dozons of candidates with Wall Street street experience.

Guard your Money
Seinor researcher Wang Qunhang at China Galaxy Securities wrote the following paragraph in his blog:

"If I were a long-term investor in Japan, when the Nikkei Average dropped to a 26-year low, it meant my investment in the past 26 years was all in vain. If I started investing at 30, then I should be 56 now and have retired for one year - suppose I were a woman. How should I handle this?"

But it was not a problem just being faced by Japanese. At a meeting of China International Investment Corporation this October, the company's strategy analyst suggested its clients "take back their fist before throwing it out" in view of the unclear outlook of the global stock market.

"You can only make a strong punch by retracting your fist first," said the analyst. A client's reply was, "How can I manage this? If I retracted my fist, I'd find all my fingers missing."

According to Deng Junhao, partner and executive director of the Boston Consulting Group (BCG) greater China division, Chinese investors had become too greedy over the past years, and should partly be blamed for their loss now.

"Between 2005 and 2007, the proportion of stocks in assests of rich families rose from 10.4% to 24.7%, while that of cash and deposits fell from 74.6% to 63.6%," he said.

"Considering the impact of the financial crisis, this year investors may transfer more assets to cash and deposits and reduce their investment in the stock market," he suggested.

There were other principles Deng thought investors should follow under the current situation: first, more attention should be paid on risk controls; second, investors should choose simpler products, as complex products could contain invisible risks and bank credit; and third, they should find more transparent products, as investors need to know how they win returns.

Despite all the gloom and doom, there was optimism. The lastest Goldman Sachs report expected H and A-shares to rise by 53.4% and 11% in 2009. Though China's GDP growth was expected to slow next year, the country's strong fiscal power, foreign exchange and flexible government policies would pull the economy out of trouble, it said.

The lastest internal strategy report of Essense Securities also suggested investors gradually open new positions when prices are low, and predicted good returns by the end of the year.