Some foreign investors have found a new and simple way to make money from China's dysfunctional stock markets - by dispensing with market research and playing "follow the leader" instead.
Rather than crunching data on earnings and stock valuations to come up with investment strategies, they are mimicking China's so-called "national team", a group of state-backed financial institutions tasked with propping up share prices.
When this team of brokers, fund managers and insurers intervene to buy up shares at the behest of Beijing, foreign investors quickly follow suit and purchase the same stocks. The only difference is that the foreigners are ready to sell as soon as they can lock in a profit, often within a few hours or days.
The end result, investors say, is that the national team is unwittingly encouraging short-term trading patterns that amplify the detachment of stock markets, which have become less responsive to fundamental drivers such as earnings trends, domestic economic data and shifts in global markets.
"Some of the recent policy measures taken by China's authorities in the markets have been quite puzzling and it hasn't really increased confidence among foreign investors," said Karine Hirn, Hong Kong-based partner of Swedish group East Capital, a $3.5 billion fund management firm.
"That has prompted some investors to closely follow the intervention tactics taken by authorities rather than analyzing and investing fundamentals which we think is required."
The national team is easy to identify and simple to follow, foreign investors say.
It generally buys index heavyweights opportunistically when the market is tanking to shore up confidence.
PetroChina Co Ltd (601857.SS) is one of its favourites: with a free-float of only 2.4 percent but a weighting of more than 6 percent of the Shanghai Composite Index, it can have an outsized impact on the nation's biggest stock exchange.
Last week, when the index posted its biggest weekly gain in nearly two months, the top 10 index heavyweights, including PetroChina as well as state-owned banks and insurers, gained even as most other constituents declined, indicating authorities were intervening aggressively.
Most of these purchases happen in the last 30 minutes of trading and in heavy volumes, according to Reuters data analysis of last week's trades, indicating the aim of this intervention is to ensure benchmark indexes close higher.
By bunching large buy orders in the last few minutes of trade, it also leaves traders who had shorted stocks earlier with no choice but to buy them back and cover their positions.
THE ONLY GAME IN TOWN
Goldman Sachs strategists said "supportive capital" had flowed into big blue chips or defensive stocks such as banks, insurers, food companies and healthcare firms. The national team spends relatively little money on buying shares in small caps.
"We watch what the large Chinese brokers are doing everyday and follow them blindly as that can be quite profitable in these illiquid markets," said the head of an equity derivative trading desk at a European bank in Hong Kong.
The national team is becoming the only game in town. It has pumped 800-900 billion yuan ($125-140 billion) into stocks, according to Goldman Sachs, yet trading volumes are shrinking.
Though some investors are following the national team, many others are staying out of the market altogether.
Daily combined turnover on the Shanghai and Shenzhen exchanges has more than halved to less than 700 billion yuan ($109.5 billion) in two months.
In another sign of the growing dysfunction, Chinese shares traded outside the mainland, which are outside the remit of the national team's buying campaign, are fetching lower valuations.
The Hang Seng China AH Premium Index, which measures the valuation gap for companies listed on both mainland exchanges and in Hong Kong, is near its highest level since March 2009, indicating a widening disconnect.
Investment vehicles that mirror the performance of onshore markets have also suffered outflows.
($1 = 6.4111 Chinese yuan renminbi)