On February 26th, the Shanghai Composite Index halted its "8-day winning streak." The three major A-share indices closed lower on the day, with the Shanghai Composite falling 0.93%, losing the 3,000 point mark; the Shenzhen Component Index fell 0.04%, and the ChiNext Index fell 0.37%. Wind data shows that today the overall market saw more gains than losses, with over 3,600 stocks rising across the Shanghai, Shenzhen, and Beijing markets.
Small and micro-cap stocks in A-shares particularly shone today, with the CSI 2000 Index closing up 1.75%; the Wind Micro-cap Index rose 3.12%. In terms of individual stocks, Weihai De recorded a 7-day consecutive limit up, with its stock price reaching a historical high; Beyond Technology, Hongde Shares, Maihe Shares, Yahua Electronics, Huazhong Numerical Control, and several other stocks hit the 20% daily limit up.
Recently, small and micro-cap stocks have seen a strong rebound, with the Wind Micro-cap Index and the CSI 2000 Index accumulating a 5-day gain of 21.02% and 10.82%, respectively; funds such as the Yinhua CSI 2000 Enhanced Strategy ETF, Ping An CSI 2000 Enhanced Strategy ETF, and Nanfang CSI 2000 ETF have shown significant net value growth in the first week after the New Year.
GF Securities previously analyzed that since 2014, the probability of broad-based indices rising in the 5 trading days following the Spring Festival has been greater than 50%, with smaller-cap broad-based indices having an even higher probability of rising. From 2014 to the present, the CSI 500, CSI 1000, and CSI 2000 indices have only seen negative performance in the 5 trading days after the Spring Festival in 2020. In addition, from a macroeconomic perspective, loose liquidity and a new round of technological innovation are jointly driving the current small and micro-cap market. In an environment of declining interest rates and abundant liquidity, small and micro-cap stocks tend to perform better.
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Can this round of recovery in small and micro-cap stocks continue? Many institutions have expressed that the small-cap style is still expected to be dominant in the short term. However, some institutions have warned that the pressure from redemptions of quantitative products on small and micro-cap stocks needs to be watched out for in the future.
Caixin Securities pointed out that the liquidity risk concerns for large-cap and mid-cap stocks have begun to dissipate, but the market is still in the third stage of small and micro-cap stocks replenishing liquidity. It is expected that the Wind Micro-cap Index and the CSI 2000 will be the key rebound directions for subsequent broad-based indices.
Shi Lei, a securities investment advisor at Haishun Securities, believes that the market trend has shifted around the Spring Festival, and this round of rebound is worth looking forward to. In February and March, one should focus on hot spots and pay more attention to small-cap and even micro-cap stocks, as they will have more flexibility. As we enter the performance verification period in April, it is advisable to switch to blue-chip stocks.
CICC stated that after the recent improvement in the liquidity environment, the small-cap style has outperformed the large-cap style, and the small-cap style is still expected to be dominant in the short term, but the convergence speed with the large-cap will slow down.
CITIC Securities believes that small and micro-cap stocks are significantly affected by trading games. The market value of the positions held by quantitative products has once again sunk, which is the direct driver of the short-term excess returns of small and micro-cap stocks. It is expected that they will continue to be affected by the pressure of redemptions of quantitative products.
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