In the afternoon, the fluctuations in the A-share market suddenly enlarged!

As of around 1:40 PM, the three major indices were all down over 2%, with the Shanghai Composite Index falling below 3,300 pointsThe insurance, brokerage, military, and semiconductor sectors took the heaviest hits, and more than 3,900 stocks declined across the Shanghai, Shenzhen, and North marketsSubsequently, the ChiNext Index's losses widened to over 3%. The FTSE China A50 Index futures saw its decline deepen to 2%.

In the first half of the day, the downturn among Hong Kong's blue-chip stocks put downward pressure on the A-shares

However, the emotional discharge in the afternoon seemed not entirely attributable to the performances in Hong KongAnalysts suggest that several factors may be in play: firstly, market expectations are low as the announcements of annual reports approach; secondly, fluctuations in the US capital market continue to have significant global repercussions; and finally, the market has reached a brief phase of stagnant supply-and-demand competition.

Market Turbulence

On the last trading day of 2024, the market did not rise as expected; the first trading day of the new year also did not see a recovery, instead resulting in broad declines

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While individual stocks performed decently in the morning, the afternoon's downturn adversely affected many stocks.

By approximately 1:40 PM, the three major indices had all fallen over 2%, with the Shanghai Composite Index dropping beneath 3,300 pointsThe hardest-hit sectors included insurance, brokerage, military, and semiconductor industries, with over 3,900 stocks across the Shanghai, Shenzhen, and North exchanges witnessing declines, while over 3,700 stocks had risen earlier in the dayFollowing that, some indices saw their losses deepen further, with more than 20 stocks declining over 20%, and the number of stocks reaching their daily limit drop to around 50. On the index front, the overall A-share index has already broken its previous support, following the CSI 1000's breakdown during the last trading day before the festival.

The decline in FTSE China A50 Index futures also expanded to 2%. In the morning, all three indices in Hong Kong initially dropped over 2%, exerting pressure on A-shares, although there was a rebound thereafter

However, with the A-shares declining in the afternoon, the losses in the Hong Kong market also intensified.

From an internal perspective, the reasons for today's stock market drop are not overtly clearObserving the Asia-Pacific markets, declines dominated the day, with countries like Thailand, the Philippines, and Malaysia also experiencing significant lossesIn the past few trading days, with an ascent in the dollar's strength, non-US currencies have once again all faced declinesOn the last trading day of 2024, US stock indices closed collectively down, with the Dow Jones dipping by 0.07%, the Nasdaq falling by 0.9%, and the S&P 500 slipping by 0.43%. Major tech stocks also retreated, with Tesla dropping over 3%, Nvidia falling by more than 2%, Google decreasing over 1%, Facebook nearing a 1% drop, Amazon down by 0.86%, Microsoft declining by 0.78%, and Apple decreasing by 0.71%.

Jim Paulsen, a prominent figure on Wall Street who is bullish on market trends, indicated that the market may face adjustments in the first half of the year

Despite recent interest rate cuts, restrictive monetary policies are sufficient to stifle economic growth during the first half of this yearThere is a possibility the US stock market could drop by 10%-15%, and it may take time for the necessary adjustments to manifestNevertheless, he asserts this will not end the bull market and might provide investors with an opportunity to buy in.

What are the hidden worries?

According to some market participants, the logic behind today's market performance appears disorderedThis lack of coherence is evidenced by the fact that both government bonds and the yuan appreciate, while equity markets endure dramatic declines, with particularly heavy losses in dividend assets

Market movements indicate that Chinese government bond futures rose in the afternoon, with 30-year treasury futures up by 0.93% and 10-year treasury futures rising by 0.25%. Furthermore, the offshore yuan reached an increase of nearly 200 points against the US dollar at one point.

Examining the market structure, there indeed appears to be an overcrowding risk in dividend indicesResearch data from CITIC Securities before the festival highlights that the deviations for the STAR 50, Hang Seng Technology, and dividend indices stand out, at 8.93%, 8.42%, and 6.74%, respectivelyThis suggests a substantial deviation from their average price pointsIf the market's trading heat gradually cools, these indices could face significant pressures in the short term.

Huatai Securities suggested that the money supply and demand dynamics are moving towards a weak equilibrium, indicating the market may enter a brief pause in "existing competition": Firstly, the market's profitability reflected by the “tengluo index” shows a decline, with the proportion of stocks exceeding the 20-day moving average dropping, and the inflow of trading funds further cooling down with a significant net outflow of financing funds marking a new high since October 2024; secondly, with the end of the overseas Christmas holiday, institutional assessments tend to restore heat, leading to a slight recovery in public equity positions and a contraction in foreign capital outflow; and thirdly, against the trend, funds have stabilized, with ETFs witnessing slight net subscriptions while industrial capitals performed relatively dull

Overall, the dynamics of supply and demand caution investors to avoid sectors with high equity concentration.

CITIC Securities further notes that the overall market is still expected to remain in a volatile state, gradually returning to larger, high-performance stocks, while small-cap stocks face the typical risks of adjustment in JanuaryThis period is expected to see the disclosure of preliminary annual report performance, and with the implementation of the st rules in the new national nine articles beginning January 1, previously hyped small-cap stocks could face considerable adjustment pressuresCombining our ongoing industry tracking, the anticipated proportion of high-performance industries remains low, while specific segments in technology exhibit notable highlights.