Author: Lusheng Bin, Gu Huijun, from the title figure: Vision China

Affected by the pessimism accumulated during the Spring Festival, the first day of the year of the A-shares was hit hard. Where does the stock market go from here? Are investors going or staying? Please see our analysis.

Overall analysis on the first day of trading

A-share plunge on the first day of the Year of the Rat, 3074 stocks (except for the science and technology board) closed at the limit, accounting for more than 83%. On February 3, the Shanghai Composite Index fell 7.72%, the largest single-day drop since August 24, 2015; the Shenzhen Stock Exchange Index fell 8.45%, the largest single-day drop since September 20, 2008. (See Table 1) ; the total turnover of the two cities was 519.48 billion yuan.

Although the two cities lost 5.2 trillion yuan in market value in a day, the impact of this epidemic needs to be considered rationally. There are some positive factors worthy of attention.

(1) On February 3, the People ’s Bank of China launched a 1.2 trillion yuan reverse market repo to invest funds to ensure adequate liquidity supply; the People ’s Bank of China, the Ministry of Finance, the Banking and Insurance Regulatory Commission, the Securities Regulatory Commission, the Foreign Exchange Bureau and other five departments jointly The “Notice on Further Strengthening Financial Support for Prevention and Control of the Epidemic of New Coronavirus Infection Pneumonia” was issued, focusing on increasing monetary and credit support to maintain a reasonable and sufficient liquidity; it can be seen that this epidemic will not cause a liquidity crisis.

(2) It is reported that the Securities Regulatory Commission instructed multiple securities companies to suspend the securities lending and selling business from February 3, which can effectively avoid the vicious circle caused by malicious selling when systemic risks occur.

(3) Northbound fundingAfter the large-scale outflow of gold since the Spring Festival, the net inflow of 18.191 billion yuan on February 3 has become a tray force that cannot be ignored today, and the market has not been closed during the Spring Festival. Under continuous trading, the capital market responds more fully to the epidemic The gradual return of foreign capital shows that the first day of decline has attracted the attention of traders on the left.

Thus, we believe that the impact of this epidemic will be short-to-medium-term. With strong support from the policy side, the capital market will return to fundamentals. But for the next few days, we still have some concerns about the A-share market.

(1) On February 3rd, the trading volume was not enlarged and the change of hands was not sufficient. 2025 stocks were not opened within the day and were firmly sealed on the daily limit board. The risks were not fully released yet, and there was a subsequent inertial decline Possible.

(2) The market on February 3 only reflects the selling pressure of the secondary market, and does not reflect the redemption pressure of stock funds. From February 4, it will be an important time point for passive fund reduction of a large number of funds. Disk selling pressure will increase.

(3) Financing positions that have not been closed before the Spring Festival. In the face of a sharp decline on the first day, and many stocks cannot limit their positions, they will face a risk of liquidation, which will change from long to short.

(4) The CSI 300 and CSI 500 stock index futures closed lower and lower. The CSI 300 discount was 2.6%, and the CSI 500 discount was 2.15%. In addition to short selling for hedging risks, it also reflects the current market Before the stock index futures discount is reduced, the overall market sentiment is unlikely to reverse.

Therefore, in the next few days, if the market as a whole is not significantly stable and heavy, it is not appropriate to make a big dip.

Industry analysis on the first day of trading

From the perspective of industry segments, none of the indexes were spared, and all of them recorded green disks (see Table 2) . The smallest decline was for the pharmaceutical and biological industry -3.53%, and the second was for the bank -6.57%. Nearly half of the industries fell more than 9%.

It can be seen that although there is a pullback in the pharmaceutical biological sector, it has obvious relative gains. In contrast, 56 of the 79 daily limit stocks today belong to the pharmaceutical biological industry, and the specific fine-molecular industries are medicine, vaccines, disinfection, Chemical fiber and so on.

For investors whose daily limit cannot buy stocks, industry ETFs or funds may be an option. Investors who want to obtain absolute returns can consider choosing stock index futures for hedging, but the substantial discount of stock index futures cannot be ignored.

Do investors stay or stay?

In the face of the plunge, the herd effect is most likely to occur in the stock market. At this time, everyone should calm down and calmly think about the following three issues. Based on this, develop a trading plan and strictly implement it.

First question: How much is the stock holdings affected by the epidemic? Has the current decline / rise reflected the impact of the outbreak? When thinking about this issue, it is recommended to divide into three situations of optimism, neutrality and pessimism, and analyze the overall performance, valuation and market sentiment.

Second question: How much can I afford to fall? Different investors have different risk tolerances, so the degree of decline they can withstand is different. Investors need to draw down the stop-loss line of the decline and strictly implement it.

Third question: How long is the stock going to be held? Investors’ different investment cycles determine their different attitudes to the impact of short- and medium-term events. A reference case is the impact of the liquor industry after the introduction of the eight regulations in 2012. Speculators cleared quickly, while long-term holders made a lot of money.

Buffett said that he can only see who is swimming naked at low tide. Similarly, the true story of investment can only be tempered when the stock market plummets! Good luck to investors!


Author: Lusheng Bin, Gu Huijun (SuningCenter for Investment Strategy Research, China Institute of Finance)