Today's market exhibited extreme divergence—the ChiNext Index surged by up to 3%, reaching a new high since late 2021, while over 90% of individual stocks declined. The micro-cap and small-cap segments, led by the CSI 2000 Index, experienced significant losses. The afternoon trend mirrored yesterday's sharp decline.
This update addresses several topics of interest: 1. What are the profit levels as of yesterday? 2. How should we interpret the sharp decline in micro and small caps? 3. What is the current overseas situation? 4. Why did the ChiNext Index perform so strongly today? 5. How should we view the Shanghai Composite Index falling below 4000 points? 6. What are the recent behaviors of institutional investors? 7. How should we assess the sharp declines in Alibaba and Xiaomi?
First, regarding profit levels as of yesterday: A recent poll received approximately 10,000 responses, indicating that about 60% of participants reported losses. Given today's broad decline across A-shares and H-shares, investors who still have floating profits year-to-date have likely outperformed 60-70% of the market.
It is crucial not to overemphasize short-term gains or losses. As noted earlier this year, after a heated start, index-level returns have generally declined. However, this correction may improve future win rates and return potential. The real risk lies in investors entering the market during a rally, chasing the hottest sectors, and then selling during a downturn—repeating a cycle that erodes capital and turns them into perpetual market adversaries.
Second, the sharp decline in micro and small caps: After a brief rebound near midday, these segments fell sharply in the afternoon, with the micro-cap index dropping 3.7%—its largest single-day decline in 25 years. Notably, one-third of the 12 largest daily declines for micro caps in 2025 have occurred this month, with eight days seeing drops exceeding 3%, including the past two days, indicating heightened volatility.
This does not validate any specific view but underscores a simple truth: risks often await a trigger before materializing. Historically, micro caps tend to present better buying opportunities later in the year. One portfolio adjustment this week eliminated small-cap exposures. If such opportunities do not arise, waiting until next year may be worthwhile for improved odds.
Third, the overseas situation: It is difficult to predict. Even close monitoring can quickly become outdated, as conditions change rapidly. Oil prices, for instance, surged from just over $100 to $112 before retreating to $100, reflecting high volatility rather than risk resolution.
Key observations include: - Saudi Arabia suggested that if conflicts persist into April, oil could reach $180. - The spread between Dubai crude spot prices and international futures remains around $50, indicating latent risk. - Bets on conflict resolution by end-May have fallen below 50%.
Given the unpredictability, the focus should be on preparedness. Enhancing portfolio resilience can help navigate different scenarios—whether conflicts resolve (supporting beta recovery) or oil prices remain elevated (requiring hedging against volatility).
Fourth, the ChiNext Index's strong performance: Two factors drove today's gains: - The recent OFC conference boosted optical module stocks, which are heavily weighted on ChiNext. - Reports of Musk's potential purchases spurred rallies in solar and energy storage sectors.
The ChiNext New Energy ETF (159368) surged over 6%, with several top holdings rising sharply. These sector gains helped ChiNext attract market-wide attention and hit multi-year highs.
Fifth, the Shanghai Composite falling below 4000 points: This is not significant—no rule mandates the index must hold above 4000. However, two points are notable: - Broad-based ETFs tracking the index saw rare net inflows of ¥900 million, suggesting speculative bets on a rebound above 4000. - Some linked a recent meeting to market stabilization efforts, though this connection seems tenuous, as the topic predated the decline.
Investors should avoid misleading narratives and focus on fundamentals—overvalued, weak assets won't be rescued by external factors.
Sixth, recent institutional behavior: Notable trends include: - Convertible bond ETFs saw net inflows yesterday, the first since March 9, though prices declined later. - Wealth management products continued redeeming from fixed-income-plus funds, but at a slower pace, while insurance funds began net purchases.
Interpretation depends on investor profiles: long-term funds like insurers may add exposure, while liability-sensitive funds may reduce volatility. Individuals should align actions with their own time horizons and risk tolerance.
Seventh, sharp declines in Alibaba and Xiaomi: Alibaba fell over 6% due to weak earnings. Xiaomi dropped despite a positive product launch, as investors sold on the news—yesterday, it was the top net sell by southbound funds. Some commentary may have exacerbated the decline, but the move reflects typical profit-taking behavior.
In summary, market conditions remain volatile, emphasizing the need for disciplined, long-term strategies.
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