'Trump wins big': Why a Chinese meme stock is surging ahead of US election

Chinese retail investors are flocking to a stock that they perceive to have a symbolic link to former US President Donald Trump, who is again on the ballot for November 5 election, reported Bloomberg News. Shares of Wisesoft Co., a Sichuan-based tech company, have surged over 30% within the week, catching attention for its Chinese name, “Chuan Da Zhi Sheng.”

The name sounds similar to "Trump wins big" in Mandarin, sparking a wave of speculative enthusiasm among investors hoping to ride a so-called "Trump concept stock."

Social media and online forums influence Chinese retail investors as much as they do in other markets, but the impact in China can be particularly pronounced because of a different regulatory environment and a less mature investor base. Retail investors are prone to being swayed by popular sentiment and perceived connections to global events rather than a company’s underlying value.

This is not the first that Wisesoft stocks are rallying during the US election cycle. The company’s shares saw a similar surge in 2016, ahead of and after Trump’s presidential victory, creating a speculative frenzy based more on sentiment than on the company’s actual business, which has limited ties to the United States.

Although Wisesoft’s financials show a loss and declining revenues, its stock is still climbing due to speculative buying driven by retail investors, reported SCMP.

“Every country has ‘meme stocks’, but the high presence of irrational retail investors in China only fuels such speculative sentiment. In such cases, stock prices are not justified by financial fundamentals, but by popular attention,” SCMP quoted Xu Tianchen, senior China economist with The Economist Intelligence Unit, as saying.

What are meme stocks?

Meme stocks refer to stocks that gain popularity and price momentum largely through social media and online forums, often detached from their actual financial fundamentals. These stocks typically experience dramatic price swings, driven by retail investors rather than institutional or long-term investors, and are influenced by online trends, news events, or simply because they become "memes." Classic examples in the US include GameStop and AMC, which saw significant trading activity fuelled by online forums like Reddit's WallStreetBets.