Investors steer market toward danger

Stock markets in most countries generally move in line with the upward or downward trends seen in the larger economy. However, this is hardly the case in the Chinese mainland, where the equity market decoupled from the economy long ago.

I would attribute this to the fact that the mainland stock market is dominated by poorly informed retail investors. For the most part, these investors - who make up some 80 percent of local market participants - are easily given to irrational trading behavior and are more inclined to gamble than to take positions in companies they feel will perform well over the long term in light of conditions in the macro economy.

Even though a recent string of economic indicators seem to show that China's economy is moving toward a recovery, stock indices at mainland bourses continue to drop.

In order to fix the current situation, the securities regulator should encourage more institutional investors to tap the market.

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