Back to the starting point of the "small bull market".

Yesterday, the Shanghai Composite Index fell below 3,000 points again, and the Shanghai Composite 50 Index hit a new five-year low since January 4, 2019, and the latest closed at 2,286.58 points.

This is a 44.37% retracement compared to the intraday high of 4110.18 on February 18, 2021.

As you can see from the chart below, the SSE 50 Index has returned to the starting point of the "small bull market" that began in early 2019.

(Image source: Oriental Fortune APP, statistics as of 2023/12/5, no investment recommendation)

In addition, the CSI 100 Index and the CSI 300 Index, which represent large-cap stocks, also brushed out new lows on Tuesday. The CSI 100 index fell 2.01% on Tuesday to close at 3,203.72 points, hitting a five-year low since January 8, 2019. Compared with the intraday high of 6154.55 points on February 18, 2021, it has retraced 47.95%.

(Image source: Oriental Fortune APP, statistics as of 2023/12/5, no investment recommendation)

The CSI 300 index also plunged 1.9% on Tuesday to close at 3,394.26 points, also hitting a five-year low since February 18, 2019. Compared with the all-time high of 5930.91 points set on February 18, 2021, it is a retracement of 42.77%.

(Image source: Oriental Fortune APP, statistics as of 2023/12/5, no investment recommendation)

01

The size index was significantly differentiated

On the whole, Oriental Wealth Choice data shows that the important indexes of A-shares fell more and rose less during the year, unlike the above-mentioned indices representing large-cap stocks, the indices representing small-cap stocks were relatively strong, such as the CSI 2000 Index closed up against the trend, with a cumulative increase of 7.11% as of December 5.

Among the cumulative declines, the BSE 50 Index, which is more representative of small-cap stocks, has the smallest cumulative decline of 1.89%. Recently, the Beijing Stock Exchange 50 Index has been even more bullish, with a cumulative increase of more than 50% since October 24. By the close of trading on December 5, the cumulative increase of the BSE 50 index was still more than 40%. On Tuesday, the Beijing Stock Exchange 50 Index rose 7.28%, and the 30CM limit was set off again in the sector. In addition, the CSI 1000 Index has fallen by 4.6% since the beginning of this year, which is also the smallest cumulative decline in the index.

(Data source: Oriental Wealth Choice data, statistical interval: 2023/1/1~2023/12/5, no investment recommendation)

02

Companies below 5 billion are the most fierce

In terms of individual stocks, the differentiation between large and small cap stocks will be more obvious. According to the data of Oriental Wealth Choice, after excluding the newly listed stocks during the year, taking the market value at the end of 2022 as the reference standard, it can be seen that 0-5 billion stocks were the strongest during the year, with a median rise and fall of 14.43%. 5 billion to 10 billion stocks performed second, with a median change of -1.48% for the year.

Conversely, 30 billion to 50 billion stocks performed the worst, with a median year-to-day gain of -12.96%. The median change of 50 billion to 100 billion stocks was -8.64%, and the median change of stocks with a market capitalization greater than 100 billion was -5.72%.

(Data source: Oriental Wealth Choice data, statistical interval: 2023/1/1~2023/12/5, no investment recommendation)

Judging from the top 20 stocks with cumulative gains during the year, small-capitalization companies do dominate the list. Kaihua Materials (+658.88%), which rose the most, had a market value of only 330 million yuan at the end of 2022. It was followed by Liante Technology (+468.02%), with a total market capitalization of 2.731 billion yuan at the end of 2022.

On the whole, among the top 20 stocks with cumulative gains during the year, only Zhongji Innolight had a market value of more than 10 billion yuan at the end of 2022, and the rest were less than 10 billion, of which 13 stocks had a market value of less than 5 billion yuan.

(Data source: Oriental Wealth Choice data, change statistical range: 2023/1/1~2023/12/5, market value statistics as of 2023/12/5, no investment recommendation)

03

Many big votes were cut in half during the year

For the 100 billion giants, the performance during the year was not good. China Duty Free, Trina Solar, Agile Co., Ltd., JA Solar Technology, EVE Lithium Energy, LONGi Green Energy, and Aimec all cut in half during the year, of which China Duty Free fell by more than 60%.

Overall, among the 128 stocks with a total market capitalization of more than 100 billion at the end of 2022, 77 stocks have fallen since the beginning of this year, accounting for more than 60%. Among them, 58 shares fell by more than 10%, 39 shares fell by more than 20%, and 23 shares fell by more than 30%.

(Data source: Oriental Wealth Choice data, change statistical range: 2023/1/1~2023/12/5, market value statistics as of 2023/12/5, no investment recommendation)

04

Will the small-cap style continue?

Many investors said that the current A-share market is still in the extreme of small-cap stock style, Tuesday's rise in the 50 index, the CSI 100 index and the CSI 300 index have brushed new lows, and the Beijing Stock Exchange 50 index made a comeback, rising more than 7% is a good proof. Over time, whether the small-cap style can be maintained has become more and more the focus of investors' attention.

For the phenomenon of the intensification of the style of large and small tickets, Guosheng Securities said that the reason behind it can be explained by risk appetite and capital behavior. On the one hand, at the end of the year, as the traditional policy window period approached, under the suppression of some medium and long-term problems, the risk appetite of institutional funds did not rebound; on the other hand, in the past 1-2 months, the capital sentiment represented by the two financial and shareholder sentiment has picked up rapidly, and the increase mostly comes from the two financial and individual active funds. Reflected in the trading structure, it can be seen that the turnover of the CSI 2000 Index has reached a new high, while the turnover of the CSI 300 Index has continued to reach a new low.

Looking ahead, many institutions believe that the small ticket style will continue. Huaxi Securities said that the nature of marginal funds determines the short-term market style, and in this round of rebound, the weakening of institutional pricing power makes the blue-chip style elastic insufficient. Since November, financing funds have become the main incremental funds of A-shares, helping the small-capitalization style to strengthen. The small-cap style may have a short-term equilibrium due to the relative valuation comparison, but the pricing logic of large-scale style switching is not yet solid, and the small market capitalization market is likely to be over in the medium and long term.

China Merchants Securities also believes that there is a high probability that the small-cap style of the A-share market will continue to prevail in the future. There are four reasons for this: 1) China's economic fundamentals are gradually entering a recovery cycle, 2) new industry trends such as AI, specialization, special innovation, high-end manufacturing, and new energy are rising, 3) the liquidity environment is expected to be relatively loose in the future, and 4) favorable policies have brought more incremental funds into the market.

Of course, some institutions said that such an "extreme" trend means that the market may change at any time. Huixin Fund said that although the micro-cap stock index has continued to rise recently, the performance of the index itself is inflated. Recently, some popular micro-cap stock strategy products have been relatively successful, but we still need to be vigilant about the risks of investing in micro-cap stocks in the future, and pay attention to the trend of switching between small and small cap styles.

CICC said that the rebound in risk appetite is expected to drive the A-share small-cap style to continue to dominate, but it needs to pay attention to the degree of valuation differentiation of the small-cap style, and historical experience shows that large valuation differentiation may also bring short-term style rebalancing.

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