"I've never seen the A-share market below 2800 points," exclaimed Xiao Ting, a post-95s investor who entered the market during the recent bull run, upon receiving a pop-up news alert.
For some seasoned investors, however, this downturn has been a long-awaited event. "Before, it was like a dull knife cutting meat, not refreshing," one influential figure described. "There are investment groups counting down to 2800 points, as if it's New Year's Eve."
On the morning of January 18, 2024, the Shanghai Composite Index broke through the 2800 point mark during trading, reaching a low of 2760 points, setting a new low since May 2020. However, about an hour before the market closed, the Shanghai Composite rebounded and closed in the green, ending at 2845 points. The A-share market saw a significant increase in trading volume, reaching 876.98 billion yuan for the day, a new high for the year.
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It is worth mentioning that market activity notably picked up in the afternoon, with funds taking advantage of stock ETFs to position against the trend. Several Shanghai 50 ETFs and CSI 300 ETFs saw significant volume increases due to large purchases by unknown funds during and at the end of the trading day. Among them, the Huaxia Shanghai 50 ETF traded 10.8 billion yuan for the day, a 276% increase from the previous day's 2.87 billion yuan. The Huatai-PineBridge CSI 300 ETF traded 15.26 billion yuan for the day, a 256% increase from the previous day's 4.28 billion yuan, and its daily trading volume also set a historical second high. The historical highest trading volume occurred during the significant market adjustment in 2015. Some investors suggest that it is possible that national team funds have entered the market to support the bottom.
By the close, the Shanghai Composite Index was up by 0.43%, the Shenzhen Component Index was up by 1%, the ChiNext Index was up by 2.53%, the Beijing Stock Exchange 50 was up by 2.41%, and the Shanghai 50 was up by 1.78%. The previously popular dividend index slightly declined by 0.69%, the Wind Micro-cap Index fell by 2%; the Mao Index rose by 2.13%. In terms of sectors, photovoltaics, communication equipment, gaming, liquor, and insurance led the gains, while tourism, agricultural product processing, and steelmaking materials declined.
The Hong Kong stock market also ended on a positive note. The Hang Seng Index ended a four-day losing streak with a 0.75% gain, and the Hang Seng Tech Index rose by 0.51%. Shipping, industrial, and technology stocks rose, with OOIL leading the blue chips with a gain of over 5%, Xinyi Solar Energy gained over 5%, and Hua Hong Semiconductors rose by over 4%.
According to the interpretations of the surveyed institutions, the current market consensus is pessimistic, with floating chips continuing to clear, and risk appetite is at a historical low.
Stock index V-shaped reversal.On January 18th, the A-share market experienced a V-shaped reversal, with the Shanghai Composite Index experiencing a maximum fluctuation of over 3%, and the trading volume of both markets also significantly increased.
"The clearance of panic capital and the entry of incremental funds are often one of the characteristics of the bottom," said Xia Fengguang, fund manager at Rongzhi Investment, who increased his stock position during the sharp decline of A-shares on the morning of January 18th.
Xia Fengguang analyzed that the sharp decline in A-shares in the early morning of January 18th was more due to the panic on the emotional side, with the main cause being the stampede of funds within the market. "Generally, the end of a bear market is more prone to accelerated bottoming out at the daily and weekly levels. The bottoms in 2022 and 2023 both had this characteristic. Since the market broke the platform in July 2023, the cycle and amplitude of the decline have been quite sufficient; today's increase in trading volume and stabilization indicate the result of the exchange of market chips."
Around 13:50, the Shanghai Composite Index, Shenzhen Component Index, and ChiNext Index all began to rise simultaneously, with many of the Shanghai and Shenzhen 300 ETFs experiencing a significant increase in trading volume. Taking the largest stock ETF in the market, Huatai-Pine Rich Shanghai and Shenzhen 300 ETF as an example, its trading volume in the afternoon exceeded 15 billion yuan, setting a historical second high.
As the A-share market adjusts, funds are accelerating to bottom-fish through ETFs. According to financial data statistics from Wind (Wang De), on January 16th and January 17th, the net inflow of ETFs across the market exceeded 13.5 billion yuan for two consecutive days. So far this year, the total net inflow of ETFs across the market has reached 51.7 billion yuan, of which the Shanghai and Shenzhen 300 ETFs have seen a net inflow of 32.7 billion yuan.
The market's panic sentiment is also amplifying. On the evening of January 17th, the market spread news of "blowout" of the China Securities 500 Index snowball products in which investors participated. So far, no financial institution has admitted to this news, but it has caused anxiety among other A-share investors.
The snowball products are linked to over-the-counter options that include individual stocks and indices, with the China Securities 500 Index and China Securities 1000 Index options being the most mainstream. These two major varieties have good liquidity and are therefore chosen as the benchmark for most snowball products.
According to statistics from Zheshang Securities, the impact of large-scale knock-in of snowball products on the market is between 4400 and 5200 points for the China Securities 500 Index, and between 4500 and 5600 points for the China Securities 1000 Index. As of the close on January 18th, the China Securities 500 Index was operating around 4900 points, and the China Securities 1000 Index was around 5200 points, which is in the range where the impact of snowball products is relatively large.
Nevertheless, according to Zheshang Securities' forecast, the current knock-in of snowball products only affects about 3% of the daily transaction volume of the related index spot, and on average, every 100-point fluctuation in the index affects the daily transaction volume of the spot by less than 5%, with limited impact on the overall market.
"The existence of snowball products cannot directly affect the trend of the spot market, and the main impact is still concentrated on the price difference trend of the stock index futures. The decisive factor for the index price trend is still the fundamentals of the constituent stocks," said Cinda Securities in its analysis.When will the market improve?
As the market continues to adjust, some funds that have increased their holdings are beginning to enter the market.
"Since the beginning of this year, more and more industrial capital and listed companies have started to increase their holdings and repurchase. The ducks know first when the spring river water warms up, and I believe the management knows better whether the company is undervalued. I remember that in 2008, there was also a large increase in industrial assets, and looking back, it was indeed a great opportunity," Wang Gui Zhong, the director of large technology at Harvest Fund, told Caijing. He believes that the key factor restricting the performance of A-shares lies in corporate profitability. However, he has seen the vitality and hope of Chinese industries in his first-line research.
Wang Gui Zhong cited the example of a marginal car company. "This company has been squeezed to the point of nothing left in the domestic market, but it can export 1.88 million vehicles overseas and made 2 billion yuan in a month, which is proof of the competitiveness of Chinese enterprises."
Yuanxin Investment stated that in its research on excellent companies that have been continuously tracked, it has found that new era opportunities are becoming increasingly clear and certain. Chinese manufacturing and Chinese brands are gradually moving towards the world, bringing greater investment value and sustained growth. "We believe that these excellent companies and hardworking entrepreneurs, through continuous efforts, can continue to create real alpha value for society and industry, which is the confidence we can rely on to go through bull and bear markets."
Looking forward to 2024, we believe that the recovery of the inventory cycle and the further increase in stable growth policies can continue to stabilize and improve the domestic macro environment. Both China and the United States are at the end of the de-stocking phase, and economic data show signs of stabilization. The new year's stable growth policy is set to be positive, and if the central government's leverage increase, stable real estate "three major projects" and other policies are effectively implemented, they will add momentum to the economic stabilization and recovery." Guotai Fund analysis.
"The macro situation in 2024 is likely to be better than in 2023, but it is also important to seek progress while maintaining stability." Yuanxin Investment analysis, the important observation indicator reflecting the relative allocation cost-effectiveness of domestic stocks and bonds, the equity risk premium (ERP) level, has exceeded the end of April and the end of October in 2022, and is basically the same as the extreme value at the end of 2018. The cost-effectiveness and winning rate of stock assets in medium and long-term allocation are at a historical high.
"We should firmly adopt a bottom-line thinking and do a reversal of the market." Bosera Fund said that local and national two sessions are about to be held, and there is a large space for policy game, and every time the market comes out of the bottom, it is also accompanied by an improvement in economic expectations and risk preference. It is expected that large-cap stocks will benefit more.