The 'roller coaster' market trend after the National Day holiday

On October 11, 2024, the market closed on Friday, marking the end of the first week of trading after the National Day holiday. It has to be said that this week's market was indeed very exciting.

Especially for the new investors who have just entered the market, they haven't yet digested the continuous magical surge that lasted for a week before the National Day holiday, and then in the four trading days after the holiday, they encountered the style switch of the A-share market one after another.

Or, to put it another way, the true nature has been revealed?

This article will not discuss the market conditions and policy dimensions with everyone, but will focus on sorting out and analyzing the reasons behind the rise and fall of the market.

All markets and commodity prices in the world actually follow a rule, that is, "only with buying and selling, there is rise and fall". Without buying and selling behavior, then all prices lose their meaning.

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The stock market is the same, all market fluctuations are driven by the actions of buying and selling. The sudden switch of the domestic stock market style after the National Day holiday in 2024 caught new investors off guard, but upon careful analysis, there are reasons to follow.

Moreover, such causal logic is not complicated, and there are no insider or in-depth explanations. The market downturn can only indicate that the selling force and scale exceeded the buying volume, and vice versa.

Then, a very realistic and important question arises.

As a retail investor, it is essential to be clear about a harsh reality:In the stock market, theoretically, everyone is your counterparty, and among them, the biggest counterparty is undoubtedly the one with the most chips. Who are they?

When the market reaches a consensus on bullish sentiment and emotions are high, who is firmly bearish and continuously selling?

For the current market heat and friends who have just entered the market, these two questions are extremely important.

This article was written after the market on October 11th, and the content and related analysis logic are quite important, worth the time and patience for friends who see it to read and understand.

1

Investors are rushing into the market, but who is queuing up to reduce their holdings?

Let the data speak, with reason and evidence, first look at the composition of China's financial market:

In terms of market value of listed shares, as of the end of the second quarter of 2024:

Image source: See the figureFirst place undoubtedly belongs to non-industrial capital, namely the major and minor non-holders of listed companies, holding a 49% stake.

Second place goes to individual investors, also known as retail investors, with a 28.2% stake. (Of course, a significant portion of this percentage includes relational capital, as well as institutions, organizations, and the vested interest groups holding shares off-market on behalf of others)

Third place is occupied by public mutual funds, with a 7.6% stake.

Fourth place is held by foreign capital, with a 4.1% stake.

Fifth place is for insurance funds, with a 3.2% stake.

The last two places are occupied by private equity funds and pension funds.

If we consider retail investors as a single entity, the opposing side's stake ratio is 71.8%, creating a power ratio of 1:2.55.

In other words, if we remove the relational accounts and the hidden holdings within the retail investor group, retail investors, who are the primary source of fresh liquidity, are extremely precious and important.

So, what do people think will happen when a rare bull market atmosphere appears after several years? New individual investors, the genuine retail investor groups, rush to enter the market, what will the major and minor non-holders and institutions do?

Of course, they will reduce their holdings and distribute their shares.Retail investors are after chips, and major shareholders and institutions are just making it happen for them:

Handing over the chips, taking away the profits, achieving mutual success, and creating a win-win situation. Everything is so reasonable and logical.

After a rapid rebound in the A-share market before the National Day holiday, some listed company shareholders have started to accelerate their share reduction.

Just two trading days after the National Day holiday, nearly a hundred listed companies in the A-share market disclosed plans for share reduction and announcements of the results of share reduction.

If we extend the timeline, starting from the beginning of this round of the upward trend on September 24th, by October 10th, according to Wind (Wang De) data, 158 listed companies with 263 shareholders disclosed plans for share reduction, and 221 shareholders implemented the reduction. Shareholders who implemented the reduction had generally published their plans beforehand and chose to "pocket the profits" recently.

In contrast, in the 10 days before the market started (September 14th-23rd), 155 shareholders from 60 companies disclosed plans for share reduction, and 46 shareholders completed the reduction; 22 shareholders from 14 companies disclosed plans for share increase, and 64 shareholders completed the increase.

In comparison, the number of shareholders reducing shares has increased significantly, while the number of shareholders increasing shares has not changed much, which has sparked discussions in the market about the confidence of listed company shareholders.

Looking at the types of shareholders planning to reduce shares, among the 263 shareholders planning to reduce, there are 156 corporate shareholders, 79 executives, and 28 individual shareholders.

Among them, 31 are controlling shareholders or actual controllers of the company, or their concerted action persons, or the holding platform of the actual controller, accounting for about 12% in total.

Regarding the reasons for the reduction, most shareholders cited "their own funding needs," as well as the need for funds to exit upon the expiration of funds, and passive liquidation due to forced execution for default, etc.Of course, this is a more decent way of putting it. Between a purchase and a sale, an entry and an exit, it actually explains quite well how the roller coaster stock market trend after the National Day holiday came about.

From a practical standpoint, some things, to put it bluntly, are not that complicated:

The significant increase in stock prices has given some shareholders, especially those who entered early and had lower costs, the motivation to take profits and settle.

Moreover, recently, some shareholders who have reduced their holdings significantly are operating companies with poor fundamentals. For shareholders of such companies, they may lack confidence in the company's future development and choose to reduce their holdings and cash out.

At the same time, some shareholders were previously 'trapped' due to the continuous decline in stock prices, and the warming up of the stock market provided an opportunity to 'untrap'.

In addition, some shareholders are worried that subsequent reduction policies will gradually tighten, and they tend to cash out as soon as possible to avoid the adverse effects of potential policy restrictions on their reduction actions.

The financial market is the same all over the world. From the market effect of reduction, the increase of reduction will inevitably have some 'cooling' effect on the continuously rising market sentiment.

Moreover, when the scale of reduction continues to expand and the behavior of reduction is too frequent, it may further trigger market concerns and even panic, leading to a continuous decline in stock prices and increasing market volatility risks.

These things are the core reasons that allow countless new stock investors to experience the feelings that old stock investors have experienced over the past few decades in just a few days.

Without talking about macro terms, policy analysis, the financial market is also a market, and the logic that buying and selling relationships determine the rise and fall of the market is clear at a glance.When the sell orders exceed the buy orders, a decline is inevitable. Of course, the reverse of this relationship also holds true.

After reviewing this latest trend, have you, dear friends in front of the screen, gained a better understanding and feeling of the market changes, style shifts, and logic behind price movements after the National Day holiday?

2

What key essence of the financial market can be seen from the relationship of buying and selling?

In this world, there are some essences that can never be understood without experience.

For instance, consider this statement: Financial markets never create wealth; they only transfer it, and they do so with the highest efficiency in the economic and social context.

For new stock investors, understanding this statement is beneficial in every way and has no drawbacks.

Buying stocks is for making money. Ultimately, the rise and fall of a country's stock market are mainly a reflection of people's economic expectations, which depend on the country's economic development and the profit prospects of listed companies. Even if the central bank prints money (unless it prints recklessly) to buy stocks, if the economic and profit prospects of listed companies do not improve, printing money cannot fundamentally change the direction of the stock market.

Looking at it from the relationship of buying and selling, when the economy has not yet shown a definite improvement, the choices of the group holding the most chips are very meaningful for reference.

Major shareholders legally and reasonably reducing their holdings is a market behavior, nothing to blame, but the impact of such reductions cannot be ignored.In most cases, the reduction of holdings by major shareholders can generally be seen as a bearish signal.

On one hand, the reduction of holdings by major shareholders itself is a "bearish" signal, as shareholders often have a better understanding of the company's operations and financial situation. If they are confident in the future stock price, why not continue to hold?

On the other hand, if major shareholders reduce their holdings through the secondary market, they will also recover a large amount of funds. With less money in the secondary market, it is naturally difficult for the stock price to rise further.

Combining the current situation of China's stock market, the state is responsible for initiating the first wave of the market, and new investors are responsible for entering the market to support the stock prices. Then, due to the large-scale concentrated reduction of holdings by listed companies, a roller coaster market has emerged in the financial market after the National Day holiday.

Trend analysis: Combining the latest several trends at the national level, how should we view the future direction of China's financial market?

According to the market trend after the holiday for these four days, it is obvious that the selling force clearly dominates, and there are also a large number of new investors and funds who have entered the market in a rush and are stuck at high positions.

The most concerned issue for the current market and investors is the future direction of the market.

Here, I share two latest trends at the national level with you:

The first one is that the three major exchanges have all issued announcements with a warning implication:On October 10th, the Beijing Stock Exchange (BSE) issued an announcement stating that recently, it has been discovered that some investors have violated regulations by purchasing shares from major shareholders through block trades and then selling them shortly thereafter. This action contravenes the provisions of the "Beijing Stock Exchange Listed Company Continuous Supervision Guidelines No. 8 - Share Reduction and Shareholding Management," which stipulates that "major shareholders of listed companies who reduce their holdings through block trades or agreement transfers must not sell the shares they have acquired within six months after the transfer." The BSE has taken strict and prompt action, imposing public censure on the relevant investors and restricting their securities accounts from trading for six months, among other regulatory measures. Concurrently, the BSE has referred the relevant leads to the China Securities Regulatory Commission (CSRC) and is cooperating with relevant departments to further investigate and handle the aforementioned illegal and non-compliant activities in accordance with the "Securities Law" and the CSRC's regulations on share reduction.

It is hoped that all market participants will consciously abide by the laws and regulations of stock trading and various institutional rules, jointly maintaining a standardized, orderly, fair, and just market environment.

Additionally, there are the latest announcements from the Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE):

On the evening of October 11th, the SZSE and SSE released recent regulatory updates.

From September 27th to October 10th, the SZSE imposed disciplinary actions on nine cases of non-compliance, involving violations of information disclosure and standard operation regulations; issued regulatory letters for three cases of non-compliance, also concerning information disclosure and standard operation violations. During this period, a total of 21 inquiry letters and 16 other types of correspondence were sent.

During this period, the SZSE took self-regulatory measures against 447 instances of abnormal securities trading behavior, including intraday price manipulation and false declarations; focused on monitoring the trading of newly listed stocks; conducted investigations into five significant matters of listed companies and reported two cases of suspected illegal and non-compliant activities to the CSRC.

In response to the inadequate fulfillment of customer trading behavior management responsibilities, the SZSE took regulatory measures by issuing a verbal warning to a member.

From October 8th to October 11th, the SSE's company supervision department sent out a total of five regulatory work letters; through mid-and post-event supervision, it requested the disclosure of four supplementary and corrective announcements from listed companies. At the same time, it intensified the joint supervision of information disclosure and abnormal stock prices, initiating four investigations into insider trading and abnormal trading for companies that disclosed sensitive information or experienced significant stock price anomalies.

During this period, the SSE took written warning and other regulatory measures against 144 cases of abnormal securities trading behavior, such as price manipulation and false declarations, and conducted special investigations into 12 significant matters of listed companies.

From the above statistics, it can be seen that recently, the SSE and SZSE have collectively taken regulatory measures against a total of 591 cases of abnormal securities trading behavior, including price manipulation and false declarations.Secondly, just before the market opened on October 10th, the central bank implemented the "Securities, Funds and Insurance companies Swap Facility (SFISF)" tool. This supports qualified securities, fund, and insurance companies to exchange bonds, stock ETFs, and constituents of the Shanghai-Shenzhen 300 index for high-grade liquidity assets such as government bonds and central bank bills from the People's Bank of China.

The announcement indicated that the initial operation scale is 500 billion yuan, with the possibility of further expanding the scale depending on the situation.

This is also one of the most important institutional innovations from the September 24th meeting of the three giants, with a very obvious stimulus to the market. Governor Pan of the central bank originally said, "If done well, the first phase of 500 billion yuan, another 500 billion yuan can be added, and even a third 500 billion yuan can be considered."

In fact, on the trading day of October 10th, it was already reported that a securities company had obtained bonds from the central bank through the swap facility and exchanged them with commercial banks for cash, which then entered the stock market to buy stocks...

The reason why there could be a slight rebound on the 10th, in the face of a huge selling force, lies here.

Combining these two latest trends, it is actually worth having continued confidence in the domestic financial market.

For outsiders, it's about the excitement; for insiders, it's about understanding the intricacies. Around the domestic financial market, a complex, tense, and值得期待的 game has officially begun.

The country does not want a crazy bull market as before, nor does it want to use the stock market as an economic adjustment tool in this round, allowing some groups to be infinitely magnified by human nature, taking advantage of the situation to make huge profits and cash out.

It's still the same saying: The stock market does not create wealth, it only transfers wealth.