April 16, 2024 review: stock market crash trend

The market sentiment has been declining for two consecutive days. The market index showed a false rally yesterday and today it approached the 3,000-point mark. Individual stocks fared even worse, with yesterday's decline followed by another unresisted drop today. It wouldn't be an exaggeration to describe it as 'a thousand stocks hitting the limit-down.' What's causing this market situation? Many attribute it to the impact of the 'National Nine Articles,' which stipulate that companies that don't pay dividends will be labeled as ST stocks. This is seen as negative for small-cap stocks. However, upon closer inspection of the policy, small-cap companies can avoid paying dividends if they have R&D investments, especially those in high-growth industries. After all, every large company started as a small one. That said, there are undoubtedly some weaker companies. Some of the capital trading these stocks comes from quantitative funds. The declines at the beginning of the year and on February 28th have made it clear that many quantitative strategies rely on arbitrage in small-cap stocks due to their high volatility. When external factors trigger uniform trading behavior, liquidity issues can easily arise, leading to the spectacle of 'a thousand stocks hitting the limit-down.' Could there be misjudgments in this? Certainly. Once liquidity gradually recovers, companies with strong themes, growth potential, and R&D investments will regain market recognition, while those that neglect shareholder returns—regardless of size—will gradually be marginalized. This is the core of the policy. After the short-term pain, this decade-long policy document will allow high-quality companies to stand out.

In terms of sectors, state-owned enterprises (SOEs) continued to perform strongly today. China National Chemical Engineering Group Co., Ltd. (CNCEC) saw two consecutive limit-ups, while China Haicheng and China Nuclear Science & Technology also hit the limit-up. The new 'National Nine Articles' include measures to strengthen cash dividend supervision, deepen delisting reforms, and promote the entry of medium- to long-term capital into the market, thereby bolstering long-term investment power. Among SOE reforms, SOE stocks with increasing dividend yields naturally attract more capital. In the afternoon, the home appliance sector showed unusual activity. Reports indicate that in Q1 2024, the traditional e-commerce channels for small kitchen appliances improved, driving better domestic sales for small appliance companies and exceeding pessimistic market expectations. On the export front, the front-loading effect of overseas orders led to excellent growth in export business, with leading companies further gaining market share and showing even stronger order performance. Current order schedules further ensure Q2 operating results. The clear sequential recovery in domestic sales, coupled with rapid growth in export OEM business, guarantees Q1 performance for small kitchen appliance companies, making their operational inflection point worth watching.

Overall, today's market crash saw almost all sectors decline except for high-dividend stocks represented by SOEs, which remained relatively resilient. Micro-cap stocks were the main force behind the recent two-day decline. For the market to stabilize, the key lies in when the loss effect in micro-cap stocks will reverse. Going forward, it's crucial to monitor whether the number of limit-down stocks can effectively decrease and whether short-term thematic plays can emerge as new leading stocks to reopen market momentum.