A-Shares Tumble Amid Volume Drop, Yuan Depreciation

The A-share market, which has enjoyed a two-month bull run, is gradually showing signs of breaking down. The overall trading volume in the market has also shrunk, with today's volume falling to 1.49 trillion yuan. Compared to last month, the total trading volume has halved. In this context, is the bull market still alive? What should we expect for the pre-holiday trading around the Spring Festival, and in which direction should we position ourselves by the end of the year? These questions will be answered today!

This wave of A-shares began its adjustment on November 8. After two weeks of consolidation, today finally saw a narrowing downside wick formation. This narrowing downside wick often signifies a short-term adjustment bottom, suggesting that a rebound may be on the horizon. However, this rebound does not equate to a trend reversal, and short-term trading is advisable at this stage—currently, the 5-day moving average

Along with the 10-day and 30-day moving averages, they have all formed a bearish trend. Following the anticipated rebound, it would be prudent to reduce positions. Additionally, trading volume continues to decline; compared to previous highs, volume has contracted by over a trillion yuan, and the pressure of trapped positions above is significant, indicating that optimism might be premature.

Advertisement

In fact, the challenges faced by A-shares are also evident when observing other assets. The first major pressure point is the sharp depreciation of the Chinese yuan. Over the past two months, the yuan has significantly weakened, depreciating from 6.96 to 7.26—an overall drop of 3000 basis points. Moreover, today's signals reinforce this trend.

Even as the dollar index plummets today, the yuan continues to depreciate, demonstrating the power of the prevailing trend. In the context of a substantially devalued yuan, it is challenging for A-shares to generate substantial market movements.

The reasons behind the yuan's significant depreciation are twofold: First, domestic stimulus measures have fallen short of expectations, as planned consumer stimulus policies have been persistently inadequate while recently introduced real estate policies are faltering again; second, the expectation of a U.S. interest rate cut is cooling off, and it looks unlikely that a rate cut will occur in December.

The repercussions of these two factors are that the recovery of the domestic economy is below expectations, leading to less than anticipated profits for listed companies. Furthermore, the cooling expectations for Federal Reserve interest rate cuts are resulting in continuous valuation declines in Chinese concept stocks and the Hong Kong market. Domestic monetary policy is also constrained, which is a major reason for the ongoing drops in the Hong Kong and Chinese concept stocks!

Given this backdrop, for A-shares to have sustained market movements, continuous policy support is essential. However, as it stands, whether regarding monetary policy or fiscal policy, being at the year-end diminishes the likelihood of any superlative stimulus measures emerging.

The foremost policy direction could involve a significant increase in tariffs, alongside potential demands for a substantial rise in imports from the U.S. This could substantially impact our exports, and an increase in imports could further aggravate our existing state of insufficient domestic demand and oversupply, contributing to deflation. This is also a reason for the continuous depreciation of the yuan.

In reality, before the change of administration, the U.S. has begun to ramp up pressure once again. Just recently, the U.S. is set to impose sanctions on our semiconductor industry, targeting over 200 domestic semiconductor companies, thus prohibiting American companies from supplying these entities. The Foreign Ministry has issued statements asserting the need for resolute measures in response.

This news had already begun to circulate over the weekend, and in accordance with past practices, such situations often result in speculation around domestic alternatives and self-sufficiency.

However, it is noteworthy that today the semiconductor sector has declined, indicating that after prolonged speculation, expectations surrounding these sectors and topics have already been fully priced in. Following the explosive growth of technology stocks centered around semiconductors in early October, these expectations have been absorbed. Caution is warranted for future occurrences of negative news, as the prevailing logic might shift toward realization and profit-taking.

Today, the entire market saw a rebound after hitting a low, and short-term opportunities can still be anticipated. In the coming period, I believe that the robotics sector, new energy sector, and cryptocurrency-related concepts may still present opportunities.

Additionally, as the year draws to a close, it is common for agricultural stocks to rise at the year's end, so positioning for this trend in advance would be wise.