Various data show that the market has already entered into the pattern of bottom consolidation. The margin requirement has constantly kept a net outflow for two weeks, with a low level in both opened accounts and turnover. Analysts believed that the market is not active in transactions with a decreasing turnover, showing that the A shares have been fluctuated at the bottom. In the future, attention could be paid to some events, such as the meetings of the Federal Reserve Board to discuss the interest rates and Chinese President Xi’s visit to the USA, which are likely to become the important time-points to observe the trend in the fourth quarter.
The data of China Securities Investor Protection Fund Corporation Limited show that the net outflow of securities margin requirement reached 84.6 billion yuan last week (Sep. 7 to 11), constantly keep a net outflow for two weeks.
In addition, the last weekly settlement report of China shows that there were 0.3 million investors newly-added in last week. The investors involved in the A-share transactions were 19.64 million, accounting for 20.96 percent of the investors with opened A-share accounts, with 20.08 percent for the previous week. There were 50.50 million investors holding A shares at the end of the term, account for 53.89 percent of the investors with opened A-share accounts, continuing to decrease when compared to 54.19 percent last week, which has been constantly declined for two weeks.
Analysts believed that margin requirement has constantly kept net outflow for two weeks, still with a downtrend for the newly-added investors when compared to that in the previous trading week and a constant decline in A-share position proportion for two weeks. All the data reflect the market’s strong wait-and-see attitude.
Moreover, the turnover of Shanghai and Shenzhen bourses also keeps low. The total turnover of the two bourses reached 477.6 billion yuan on Sep. 15, setting a new low since March this year. Based on this, famous analyst of a broker believed that it shows the weakening short selling strength, with the market fluctuating at the bottom.
Chief strategy analyst of the Industrial Securities Co., Ltd. (601377.SH), Zhang Yidong, believed that the market bottom usually consolidates in the panic sentiment, with a decline in the turnover as the most significant observation indication. Recently, the turnover of two bourses has obviously decreased, with an average daily turnover rate down to the historic mean value from the high. The proportion of margin trading in the turnover and the proportion of financing balance in the free circulation market value all drop back to or close to the levels before the initiated trend (the first half year of 2014), with a low level in both private placement and funds positions. Based on the situation mentioned above, the driving force now for sell-into-corrections has obviously weakened.
Xun Yugen, the chief strategy analyst from Haitong Securities Company Limited, also believes that the remarkable shrink in trading volume suggest the market is bottoming. Turnover of the Shanghai and Shenzhen bourses reached 41.4 billion shares on Sept. 11, hitting a new low record since this round of adjustment, down by 68 percent from the peak of 130 billion shares on May 28. Looking back, during the mid-term (such as December 1996, May-August 2006 and May 30, 2007) of bull market, the trading volume when the market was bottoming in the pullback plunged to 70 percent-80 percent of the peak. During the fluctuating pullback or the bear market slumping (such as October 2007-October 2008, April-July 2010, April 2011-January 2012, and May-December 2012), it also dived to about 70 percent of the peak value. The period lasted for about 13 trading days. The current declining turnover has reached the historical level with less time.
Although the short-term investors are hesitating, the market is going to see new changes. As for the time for bottoming, Zhang Yidong expresses that the A-share market dealt with short selling with shrinkage, rebound, bottoming, and shrinkage to stabilization in September and October so as to prepare for long selling.
In the short run, the strategy team of Guotai Junan Securities holds the idea that the Fed’s conference on discussing interest rate this week may relief the negative influence of uncertainty in U.S. dollar interest rate on global risky assets. In the medium term, Industrial Securities views that the significant economic and political achievements arising from the meeting between the Chinese President Xi Jinping and the U.S. President Barack Obama will be conducive to guide the market to form steady expectation on RMB exchange rate.
Translated by Jelly Yi
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