Didi was an unlikely favorite among TD Ameritrade users in July.
China's regulatory crackdown has unnerved institutional investors, but retail traders don't appear scared.
Data shows they've been snapping up tumbling stocks like Alibaba and Didi despite big risks.
Retail investors have changed into dip-buyers that are looking for bargains, analysts say.
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A major crackdown on big companies by the Chinese government may have scared off many institutional investors from the country's stocks – but it's not deterring retail investors.
TD Ameritrade said on Monday the American depository receipts of Chinese ride-hailing app Didi and e-commerce giant Alibaba were two of the most-bought stocks on its trading platform in July, adding to evidence that amateur traders are hunting for bargains in an otherwise expensive market and have not been put off by Beijing's actions.
By contrast, TD Ameritrade analysts said clients took advantage of rising prices to sell stocks such as Apple, Tesla and Pfizer. TD Ameritrade has 11 million client accounts with more than $1 trillion in assets.
Retail investors buying Didi and Alibaba in July were going against the grain, with the companies' US-listed stocks falling 34% and 14%, respectively, across the month, according to Bloomberg data. Didi has slipped a further 2.9% in August, but Alibaba has climbed around 0.5%.
A note by JPMorgan at the end of July found China's regulatory crackdown – which has focused on big tech firms' use of data, as well as educational companies – had scared off institutional investors. The CSI 300 index of Shanghai and Shenzhen-listed stocks slid 8.2% across the month, but has climbed 5.2% in August so far.
"It appears that institutional investors, both foreign and domestic, have contributed to the recent sell-off in Chinese equities," JPMorgan analysts, led by strategist Nikolaos Panigirtzoglou, wrote in a note.
"Instead, retail investors appear to have behaved in a contrarian fashion by seeing [the] dip in Chinese stocks as [a] buying opportunity."
Data company VandaTrack found Chinese companies Alibaba and electric-vehicle makers XPeng and Nio were in the top six most-bought by retail investors in the final week of July. Vanda also found Didi was one of the 25 most-bought.
"Chinese [American deposit receipts] are the latest example of how retail behaviour has changed over the past four months. From driving triple digit returns in high multiple stocks, they have turned into dip-buyers in underperforming ones," Vanda analysts Ben Onatibia and Giacomo Pierantoni said in a note.
Retail investors' buy-the-Chinese-dip strategy is not without risks, given the uncertainties around the future path of regulation in the country.
Famed short-seller Carson Block told Bloomberg TV on Monday that investors had failed to properly consider the dangers of investing in China for years.
"That's coming home now to bite a number of investors," he said. "It's just one of many risks that you really need to take into account, but investors have not."
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