REUTERS/Brendan McDermid
- Retail purchases of US-listed Chinese stocks hit their highest in five years, according to Vanda Research.
- Alibaba was the most purchased single stock in the US on Monday, outpacing COVID vaccine maker Pfizer.
- Individual investors have been buying Chinese ADRs even as Beijing cracks down on Chinese firms listed overseas.
- See more stories on Insider's business page.
Retail investors have been piling into US-listed Chinese stocks, with weekly data showing the largest amount of buying in five years taking place in the face of a crackdown by Beijing on Chinese companies that have raised billions of dollars through US IPOs.
Net purchases of American depositary receipts of Chinese companies surpassed $400 million with the "apex" of buying occurring in Monday's session as e-commerce behemoth Alibaba was the most bought single stock in the US, Vanda Research said in a Wednesday note. Its VandaTrack segment monitors retail activity in 9,000 individual stocks and ETFs in the US.
Purchases of Alibaba stock were more than double the buying of shares in drug giant Pfizer, whose COVID-19 vaccine with BioNTech on Monday was fully approved by the Food and Drug Administration.
"The most important singularity of retail purchases of ADRs is that they weren't contrarian. Since the regulatory crackdown started, retail investors increased their buying on dips, providing liquidity to institutional investors who were exiting long positions," Giacomo Pierantoni, an analyst at Vanda Research, said in the weekly update.
The Chinese government has been ramping up scrutiny of large technology companies and others as it clamps down on issues ranging from anti-competitive behavior and what it considers security risks in Chinese firms listing in the US. Alibaba and ride-hailing company Didi Global have been among the targets.
Vanda noted that Chinese ADR purchases soared last Friday and buying momentum continued through Tuesday, driving stocks including JD.com and video sharing site Bilibili sharply higher. JD.com surged Tuesday after the company reported record user growth.
"This makes us a little wary of chasing the rally. Much like Chinese ADRs, retail investors have a tendency to load up on QQQ and SPY when stocks tumble, but demand for these instruments fades as soon as prices start rising," said Vanda. The SPDR S&P 500 trust tracks the S&P 500 and the popular Invesco QQQ Trust tracks the Nasdaq-100 index.
In other developments, retail investors bought more than $56 million of AMC stock on Tuesday, outstripping $4 million in net retail purchases in all other meme stocks combined. AMC shares closed up 20% on Tuesday and gains continued during Wednesday's session.
"Why did other meme stocks rally then? The obvious explanation is that institutional investors are now much more involved in the meme space than they were in Q1," said Vanda. "Some of these investors are bearish and have accrued large short positions in those stocks. As soon as they see a pick-up in retail interest in AMC, they pre-emptively close some of their shorts in other meme stocks," the research firm said.