How Long Can The Machine Trading Of A-Share Market Win Under 1.7 Trillion Day Trading Volume?

"Can the stock market still be invested?" In the first weekend of September, at a high-end customer strategy exchange meeting held by China Securities Construction Investment Corporation, an old shareholder with 30 years of experience asked: "the trading volume is almost catching up with the leverage bull market in 2015. Why are the stocks and funds in hand still losing?"

Old shareholders all know that the K-line shape is easy to deceive people, but the measurement can be credible. Generally speaking, the "sky high price" in the stock market is tenable, that is to say, the stock price is often at a relatively high level when a large amount of transaction is released.

However, this year's market is quite different. The Shanghai and Shenzhen stock markets have reached a daily turnover of 1.7 trillion yuan, which has exceeded trillion yuan for 34 consecutive trading days. The Shanghai composite index is still in the long-term horizontal range of 3500 points, and some blue chip white horse stocks are still falling.

Volume price logic has changed. Who is buying? Who's selling it?

In the daily trading volume, the contribution of quantitative private funds is recognized by most institutions, while the proportion of quantitative funds is different. Most securities companies predict that the proportion will be about 15%, that is, close to 300 billion yuan.

In his speech at the opening ceremony of the 60th annual meeting of the World Federation of exchanges (WFE) on September 6, Yi Huiman, chairman of China Securities Regulatory Commission, mentioned quantitative trading, saying that in recent years, the development of quantitative trading in the Chinese market has been rapid. In the mature market, quantitative trading and high-frequency trading are common. While enhancing the market liquidity and improving the pricing efficiency, it is easy to lead to trade convergence, increased volatility, and violation of market fairness.

Retail investors lost

"I didn't make any money this year." A senior stock holder Tong Yue (pseudonym) said to reporters. Tong Yue, who is over 50 years old, was engaged in financial work in a company before retirement. He is also a high net worth investor certified by institutions. According to her own, she has invested in many types of products and participated in investment reports of securities companies, private equity funds and many other types of financial institutions.

"It's not just that I can't do it well. I didn't make much money in the small circle of stocks."

"Dan bin and Lin Yuan are not doing well this year." Aunt Tong then said.

Aunt Tong's investment performance is not a case in point. In the software she opened for the securities trading system, 70.2% of the investors have been defeated this year with a yield of only 0.87%.

This means that about 70% of shareholders are facing losses in the current market.

"With the continuous entry of foreign capital, the degree of market institutionalization is increasing." Ding Luming, chief analyst of securities financial engineering and major asset allocation of China CITIC, said that in the current market, there is a big gap between the profit ratio of individuals and institutions.

According to the comprehensive data of CICC, the proportion of the total market value held by institutional investors in the A-share market has increased from 11% in 2014 to 21% in 2020. The proportion of current market value held by institutional investors has increased from 38% in 2014 to 48% in 2020.

The proportion of total market value held by individual investors decreased from 28% in 2014 to 22% in 2020, and the proportion of current market value held by individual investors decreased from 72% in 2014 to 52% in 2020.

In terms of performance, despite the volatility of the industry, the average yield of 3460 active partial equity funds was 8.74%, and 2560 were positive returns, accounting for more than 70%.

It's not just public offering institutions. Ding Luming believes that part of the volume of transactions comes from quantitative private equity funds.

The quantitative restrictions of private placement are less and more flexible, compared with public funds. Visual China

Quantitative trading becomes the main force

The calculation of Li Lifeng, chief strategic analyst of West China Securities, confirms Ding Luming's view.

Li Lifeng believes that the massive capital trading of a shares mainly comes from three channels. First, funds attracted by the structural bull market, including funds from the north; The second is the transfer of funds in the market; Third, quantitative trading, which accounts for a large proportion.

How much volume did private placement contribute?

Some sellers' analysts give a higher proportion of 50%, while some brokers predict that the proportion should be 15%. There are also views that at least 500 billion of the 1.7 trillion transactions on September 1 came from quantitative products, nearly a third.

No matter which estimation method is adopted, quantitative trading is the main force of the market this year.

Quantitative trading refers to the use of advanced mathematical models instead of human subjective judgment, and the use of computer technology from huge historical data can bring about a variety of "high probability" events to make strategies.

Through the input of information, including market data, financial data of listed companies, as well as alternative data, such as news and public opinion, industrial chain, etc., model training is carried out, and deep learning is used to price the stock.

According to the industry insiders, one of the current mainstream development directions of quantitative private placement is natural language processing, that is, with the help of machine learning, the text information such as news, research papers and announcements in the market can be quickly transformed into quantitative data for further research.

After the pricing is completed, the quantitative fund is automatically traded through the high-frequency trading procedure, which can buy and sell low and sell high with small fluctuations in the intraday. It is impossible for ordinary investors to achieve this, but it can continuously bring excess returns to the quantitative fund.

A quantitative private fund source in Shenzhen told the 21st century economic report that the average turnover rate of domestic mainstream private quantitative institutions is actually between 10% and 25% per day (50-60 times of turnover per year), and the turnover rate of public quantitative funds will be lower.

Since the restrictions of the exchange on intraday revolving trading are more clear after 2015, the turnover rate of domestic quantitative strategy has been "falling again and again". Therefore, 50% of the 1.7 trillion trading volume comes from quantification, and the data is somewhat exaggerated.

How long can machine trading win

Why can the scale of quantitative private placement be so rapid this year?

Wei Jianrong's team of Kaiyuan Securities pointed out that the quantitative restrictions on private placement are less and more flexible, including the possibility of intra day t + 0 trading of stock bottom positions and convertible bonds, and the flexible use of stock index futures or options for hedging. In contrast, public funds are more restricted.

In addition, it has something to do with the return of quantitative talents who worked in the Wall Street giant Millennium fund. In the overseas hedge industry, the Millennium fund is a top-notch quantitative institution, with first-class scale and rich strategy.

Among the first batch of local quantitative private equity institutions to promote 10 billion yuan, there are many managers with "Millennium" background, including Wang Chen of Jiukun investment and Qiu Huiming of Minghe investment. He Wenqi, the founder of Shenzhen's new 10 billion quantitative private placement Chengqi asset, also worked for the Wall Street giant.

From the perspective of earnings performance, the overall performance of quantitative private placement has "exploded" since this year.

Wind data shows that as of the end of August, the CSI 1000 has risen by 15.55%, the gem index has risen by 9.80%, the Shanghai Composite Index and the Shenzhen composite index have increased by 1.41% and 4.74% respectively, and the CSI 300 has fallen by 7.37%.

In the first half of this year, according to the available sample statistics of more than 10 billion private equity managers, the return on enhanced private placement strategy of the CSI 500 index was 14.3%, while that of active long private placement strategy was 5.8% in the same period.

Under the triple factors, quantitative private placement has ushered in rapid development in the Chinese market.

According to the estimation of CITIC Securities Research Department, as of the end of the second quarter of 2021, the total assets under management of the domestic quantitative private equity fund industry reached 1034 billion yuan, which has officially passed the "1 trillion" threshold, and the proportion of the total scale of the private equity industry of 4.87 trillion yuan in the same period rose to 21%.

However, with the popularity of quantitative trading, the industry competition is becoming increasingly fierce. The convergence trading strategy makes it more and more difficult to quantify the excess return.

The above quantitative private fund personage introduced that in order to place an order quickly, the leading asset management companies engaged in quantitative research are all located in office buildings close to the server of the exchange.

He Wenqi said that the strategic advantages of Chengqi quantification mainly come from five aspects, including continuous iteration of theory and practice; The combination of decentralized, fast adaptation, multi band, Multi Strategy fusion and so on.

Industry insiders predict that this year's small and medium-sized market value plate index earnings will be prominent, and the index rise will also make better returns for investors. In particular, such a market with enlarged trading volume is a more friendly market environment for quantification.

At the same time, as the scale of each strategy of quantitative fund increases, there will be a certain amount of excess earnings loss, so many quantitative giants close the offer and refuse customers, and then start to raise funds after the strategy iteration.

Some investors said that the closure may also indicate that the future of these strategies is not optimistic for a period of time.

"Where there are lots of people, there are risks." Some old investors, such as aunt Tong, said, "we should have a sense of awe for the stock market. We will not invest before we fully understand the quantitative private placement."

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