After the stock price is cut in half, can retail investors get back to their capital?

Unexpectedly, A-shares fell fast and rose faster!

In the last few trading days before the Spring Festival, A-shares rose sharply for three consecutive days, reversing the previous downward trend in one fell swoop.

The micro-cap stock shock: first plummeted, then soared

It is not difficult to see from the observation of the market that in the past few days, the big money has no longer only increased the weight of the SSE 50, but has expanded to a wider range.

In the last three trading days, the CSI 500 Index has risen by 7.75%, 6.32% and 0.8% respectively, significantly outperforming the Shanghai Composite Index and the Shanghai Composite 50 Index.

On February 8, the last trading day before the Spring Festival, the main body of the rise became the small-cap and micro-cap stocks that fell the most in the early stage.

At the close of the day, the CSI 2000 index soared 8.85%, and the micro-cap index soared 10.54%!

Driven by small and micro stocks, the stock market has seen a rare surge in thousands of shares!

There are more than 1,200 stocks with an increase of more than 10%, and more than 500 stocks with a 20cm and 10cm limit.

A few days ago, there were thousands of shares falling to the limit, and now thousands of shares are soaring, playing A shares is to test your heart endurance.

On the Shanghai and Shenzhen index time-sharing charts, the yellow line is clearly ahead of the white line, which seems to mean that the risk of small-cap stocks is temporarily lifted!

The decline in A-shares since 2024 has a very obvious feature: small-cap stocks have fallen significantly more sharply than large-cap stocks.

Despite the decline in the broader market index, large-cap heavyweights such as several major banks, Three Barrels of Oil, China Shenhua, and Yangtze River Power have continued to hit new highs for several years, or even record highs.

And small-cap stocks, especially micro-caps with smaller market caps, are even worse.

As of yesterday's close, excluding the last 400 stocks in terms of total market capitalization of the Beijing Stock Exchange and ST stocks, they have fallen by more than 48% on average since 2024!

The stocks that fell the hardest were Yunzuka Technology, Xinyuan Technology, Spacetime Technology, Jiayu Shares, Yingli Shares, etc., which have fallen by more than 60% since 2024.

Taking Yunzuka Technology as an example, its share price is still above 30 yuan at the end of 2023, but today the lowest has fallen below 10 yuan, and the decline during the period is as high as more than two-thirds.

If you were a retail investor who bought Yunzuka Technology and lost two-thirds in just 5 weeks, would you collapse?

Quantitative funds: first make a big profit, then lose a lot

However, just past 2023, micro-cap stocks are real market stars.

In 2023, the Wind Micro Cap Index rose by 49.88%.

The background board of the 50% surge in the micro-cap index is that the track stocks with heavy institutional positions have collectively fallen into a long bear road.

In the context of the market stock funds, or even the reduction of funds, the track stocks that need to consume large funds to pull up are naturally sluggish, while the micro-cap stocks with a small market capitalization of more than 100 million are easy to be easily pulled up.

An important driver of the early surge in micro-cap stocks is quantitative funds.

The "elites" who engage in quantification know that track stock funds are piled up and trapped, and their stock selection strategies are naturally biased towards small-cap stocks.

Moreover, since the track stocks in which the fund is heavily weighted generally peaked in 2021, small-cap stocks have continued to be active.

Small-cap stocks have high returns, and micro-cap stocks have higher returns, and that's the status quo in the past year or two.

As liquidity gets worse and worse, small-cap excess returns are getting better and better.

"Speculation - speculation smaller" has brought a great money-making effect, attracting more new funds for the quantitative market, and this model of setting the trading target to smaller market capitalization stocks has also been strengthened.

However, just like the so-called "core assets" of other stocks that fell at the beginning of 2021 and the market rose in a single fund, since 2024, with the impact of the market style shift to high-dividend stocks, the operation strategy of micro-cap stocks has encountered heavy setbacks and plummeted one after another.

The micro-cap stocks mentioned above, which are prone to fall by 60%, are the victims of this time.

If the strategy fails, it will be difficult for retail investors to recover their capital

How miserable is the fund for micro-cap stocks?

For example, on February 5, Jinyuan Shun'an Industrial Reserve Mixed C, which is heavily positioned in micro-cap stocks, plummeted by 15.56% in a single day, and the single-day declines of Guojin Quantitative Select and Guojin Quantitative Multi-factor were also as high as 10.65% and 9.98% respectively.

It can be seen that in the past month, Jinyuan Shun'an Industrial Reserve Mixed C has fallen by more than 48%, almost halved!

Data from third-party platforms shows that some DMA products have retraced more than 30% this year, and some have even fallen by nearly 40% in a week.

The so-called DMA strategy is a trading model in which quantitative funds are allocated by brokerages and a certain percentage of margin is paid to brokerages for hedging and leverage. The margin ratio starts at 25%, which is 2-4 times leverage.

As mentioned earlier, if micro-cap stocks rise rapidly in 2023, then there will be a large amount of speculative funds entrenched in micro-cap stocks, and micro-cap stocks will be highly crowded.

As the Chinese New Year approached, the continued tightening of market liquidity, coupled with the increase in hedging costs due to the restriction on selling futures orders in the DMA business, exacerbated the downward trend of micro-cap stocks.

After the fall occurs, because the quantitative funds are traded in a programmatic way, the computer instruction is set to fall to a certain price and then throw, which triggers the stop-loss order to continue to gush out.

Micro-cap stocks are characterized by high volatility and low liquidity, which can easily lead to the loss of liquidity in extreme market conditions. If the leveraged funds are speculating, then it is normal to fall the limit every day when encountering risks.

Since all quantitative orders are to sell, the more the price breaks, the risk of micro-cap stocks is not decreasing, but continuing to increase. After one down limit, there are multiple down limits, and this is how the liquidity crisis came out.

Micro-cap stocks, which were still in full swing last year, have been hit this year, largely because of the counter-killing after the trading strategy has been carried out to the extreme.

This is the same as the stock price being counter-killed after the public fund held those "core assets" in previous years, but the object of this counter-killing has changed from the track stock public fund to quantitative funds.

There is no strategy that works permanently, only style switching and mean reversion again and again.

After the short-term halving of micro-cap stocks, even with today's one-day surge, retail investors who bought micro-cap stocks are still far from returning to their original capital.

Because of the loss of 50%, it needs to be doubled to pay back!