On January 17th, the stock market experienced a troubling downturn, with all three major indices tumbling over 2%. This fall marks the lowest point for the Shanghai Composite Index since June 2020 and the lowest for the ChiNext Index since December 2019. At the close of trading, the Shanghai Composite Index fell by 2.09%, finishing at 2833.62 points, while the Shenzhen Component Index dropped 2.58% to 8759.76 points, and the ChiNext Index saw a significant decline of 3% to end at 1699.62 points.

Overall, the market was dominated by declining stocks with over 5,000 shares falling across the boardThe trading volume on the Shanghai and Shenzhen exchanges amounted to 637.6 billion yuan, a significant decrease of 47.2 billion yuan compared to the previous session

Furthermore, northbound capital recorded a one-sided net sell-off of 13.057 billion yuan, the highest single-day net sell since October 2022. Among these figures, the Shanghai Stock Connect saw a net sell-off of 6.372 billion yuan, while the Shenzhen Stock Connect recorded a net sell-off of 6.684 billion yuan.

In Hong Kong, the Hang Seng Index fell by 3.71%, and the Hang Seng Tech Index decreased by 4.99%, both reaching their lowest closing levels since November 2022. Within this turmoil, several prominent companies suffered dramatic losses—SenseTime plummeted by over 11%, NIO and XPeng Motors dropped more than 9%, and Sunac China and Bilibili each fell over 7%. Meituan, Longfor Group, and Country Garden Services also experienced declines exceeding 6%.

Market analysts suggest that investors should avoid panic selling

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Maintaining a balanced perspective is crucial during such tumultuous timesFor traders with advanced skills, utilizing T+0 strategies may help to average down their costs, while less experienced investors might be better off observing market movements closely without engaging in frequent tradesHolding light positions and selectively buying could also be viable in this scenario, as this strategic time frame offers a chance to recover lost ground without incurring additional losses.

Continued Downward Trend

The downward trajectory of the three major A-share indices continued as of the market’s closing time on the same day, confirming that the prevailing investor sentiment leans towards pessimism

The widespread decline across sectors underscores the prevailing unfavorable economic indicators and a heightened sense of caution among participants.

Recent figures from the Shenwan primary industry index reflect a dismal state, with all 31 sectors registering red, indicating a complete market retreatNoteworthy losses were seen in heavy industries such as non-ferrous metals, food and beverage, societal services, power equipment, retail trade, and national defense, all of which recorded drops exceeding 3%. Other sectors, including automotive, electronics, construction materials, and pharmaceuticals, also faced declines.

Contrarily, the jewelry sector stood out amid a sea of red, albeit only marginally, with a slight rise of 0.21% at the close, highlighting its resilience in a struggling market environment.

Why the Market Plummeted

Market participants attribute today’s significant decline to recently released economic data

Yi Xiaobin, Director of Equity Investment at Shunshi Investment, noted that while China’s GDP for 2023 grew by 5.2%, surpassing expectations, this revival appears to be shakyEconomic indicators from December 2023 revealed weak retail performance, a slumping real estate market, and a consecutive decline in population with a birth rate hitting an all-time low, all casting shadows over the recovery.

The situation was exacerbated by rumors from external markets, making it increasingly difficult for the Chinese market, which was already struggling near the 2900-point threshold, to find sufficient support, compelling it to search for a lower base.

According to Zheng Yanxin, a fund manager at Quan Jing Fund, the market's significant drop shortly after noon was fundamentally rooted in investor pessimism regarding future trends

He emphasized that such excessive gloom stems from various factors—most notably the acute amplification of negative news in a declining market, coupled with outflows of northbound capital that intensified investor anxiety.

Wealth analysis by PaiPai Network indicated multiple causes for today’s pronounced decline: firstly, the surge of the dollar index triggered substantial foreign selling, placing additional pressure on the market; secondly, various recently released economic indicators fell short of expectations, causing an atmosphere of caution among investors; thirdly, as the Chinese New Year holiday approaches, liquidity constraints have emerged, creating more significant financial stress; and finally, persistent selling pressure over recent sessions has escalated negative sentiments, leading to a concentrated release of fears.

Furong Fund highlighted that financial data indicates the short-term economy remains at a phase of bottoming out, with no significant marginal changes seen in medium to long-term metrics

In stark contrast to the earlier forecasts after the pandemic restrictions were lifted, last year’s recovery was slow and uncertainMarket sentiments have drastically shifted towards pessimism as seen at the outset of the year, following a pattern of disappointing performance in late 2022.

Zheng Yanxin emphasized the importance of focusing on fundamental company performance in this irrational marketHe advised investors to ignore day-to-day price fluctuations and instead hone in on intrinsic company values and growth prospects.

For investment strategies, experts recommend a cautious approach amid current conditionsDiversifying holdings and maintaining equilibrium in portfolio management are paramount

It’s crucial to avoid frequent, impulsive trading based on short-term market moves.

While the market undergoes this phase of consolidation, vigilance concerning opportunities is essentialThe overarching narrative indicates that the market cannot remain at such low valuations indefinitely, suggesting that keeping quality assets may yield significant long-term returns.

Despite the volatility, analysts believe maintaining a prudent yet optimistic outlook on quality assets is vital, as the market ultimately aims to rebalance towards fair valueInvestors are encouraged to watch for potential signs of recovery, including sustained trading volumes and prevailing market sentiments that may suggest a shift back towards confidence.