A Share Slump Is Herding Effect Of Investors

In January 19, 2015, the Shanghai composite index plunged 7.7%, the largest single day decline in 7 years, the largest drop in the intraday market of more than 8%; Shenzhen stock index fell 6.61%; all financial stocks were down, the heavyweights went to the limit; the stock index futures contract was down.

It has been described that the sudden fall in the stock market is a "stampede" decline.

The reason for the stock market crash is that the general market thinks it is mainly caused by two news reports.

First, the securities and Futures Commission issued a ticket to 12 brokerages and warned the "two fusion" businesses of some large brokerages.

Two, the CBRC issued the draft opinions on the management methods of entrusted loans by commercial banks, requiring commercial banks to strictly supervise the funds under the entrusted loans.

In fact, for the two requirements of the regulators, I made it clear in January 17th that the central government wanted to let the domestic stock market change from "mad cow" to "slow cow". The symbolic significance of these policies is greater than the substantive significance.

Because regulators do not want to use harsh regulatory policies to extinguish the wave of the bull market, but to guard against systemic risks facing the stock market.

Because regulators do not want the "mad cow" like 2014 to be staged again, which will lead to systemic risk in the Chinese stock market in 2015.

But why is the theoretical analysis so far different from the realized market? Why does such a lightly understatement policy trigger the collapse of China's A shares? Are they really policy factors or are there other reasons?

In fact, at the beginning of the month, I have pointed out that the current stock market in China is very different from that in the past. One is the rise of micro power era, the popularization of investment and the change of information pmission mode; the two is the leverage of stock market; the three is the social psychological foundation of public wealth growth.

Under such circumstances, the way of anticipation and market operation of the domestic stock market is quite different from before.

These changes can easily lead to the shock and volatility of the stock market.

Under such market conditions, China's A share craze has increased more than 55% of the Shanghai composite index in more than 2 months.

In more than 2 months, it has entered the market.

As we all know, the stock market index is rising rapidly, not the rational return of stock price, nor is the real economy going well.

For such a market, investors who have already entered the market have long known that the market will fall sharply and ready to escape at any time.

Therefore, for such a highly risky market, the information on the stock market has any trouble. It will not only circulate quickly, but also become a reason for investors to escape at any time.

Also, for leveraged Chinese A shares, its leverage has only gone half, while the other half has not yet developed.

That is to say, more people in the stock market are financing, that is, "do more" stock market, while half of margin trading is short of development, that is, "short" stock market.

Because more is the stock market.

The rise can also rise, and the leverage of investors is higher and higher.

If the "do more" and "short" development at the same time, the stock market in the early two months will not rise again, because the power of "short selling" will stop the excessive exertion of "doing more" at any time.

It is precisely because the market's "do more" power dominates, because the earning effect of this "do more" behavior is bigger and bigger. This will not only attract more funds and new investors into the market, but also enable investors to leverage more and more.

It is also the process of investors' leverage increasing.

It is also magnifying, and the risk is magnified faster.

Under such circumstances, once the market has any policy trouble, even any information that is not conducive to the market "do more" may become a reason for investors to run away hastily.

If an investor flees and allows market expectations to reverse quickly, investors in the stock market may escape.

When all investors want to escape from this high-risk market, the "trampling" of the stock market is falling.

Moreover, the two news has been digested for two days, which is to let more investors escape and save time.

Because no investor in the stock market is willing to hold the last bar of the frenzy stock market in their own hands.

Market investors are very clear about the risk of this last bar.

In the face of highly leveraged market, escape is the best choice once the wind is blowing.

This is the root cause of the stock market crash in January 19th.

But in fact, for the current Chinese A shares, the government's desire to "do more" stock market has not changed.

However, the central government even wants to let the "mad cow" of the stock market become "slow cow".

As long as this exists, the domestic stock market will not change.

It is important for investors to reduce risks in this volatile stock market.

For the government, to make the "mad cow" of the stock market become "slow cow", it is necessary to improve the margin trading mechanism rather than just overdevelopment on the one hand.

How to have this mechanism, "do more" and "short" can balance each other, so as to reduce the excessive volatility of the stock market.

Moreover, when the government wants to "do more" stocks, the government will have to minimize any impact on the market if any policy is introduced.