The A-share market is currently bearing witness to a tumultuous phase characterized by a series of downward movementsRecently, the A50 stock index experienced a sudden surge, igniting speculations that the market could soon rallyThe sentiment amongst investors is rife with uncertainty, prompting some to tread cautiously while others are contemplating whether to buy the dip or hold onto their positions.

The current state of the A-share market has caused confusion among many investorsOver the course of several days, a contraction in trading volume has been noted, with the turnover plummeting to 1.1 trillion yuan on January 6. The looming possibility of dipping below the 1 trillion yuan threshold raises questions about the underlying health of the market

Advertisements

This begs the question: what does this signify for investors and the market at large?

Cautious of further declines, many prospective bottom hunters are watching the market from the sidelines, reluctant to make any commitments in a thin liquidity environmentInvestors with existing positions appear to be biding their time, anticipating a market rebound that would allow for profit-taking or simply an opportunity to break even on their holdingsThe result is a stalemate, with neither party willing to make the first move.

From both technical and fundamental perspectives, bearish trends are increasingly apparent within the A-share market

Advertisements

A significant number of investors now share a consensus outlook that further declines are on the horizonMany investors have adopted a hold strategy, waiting for a potential market retracement while leveraging any upturns to exit their positions.

Despite the pronounced downward trend, the Shanghai Composite has dropped over 200 points over four consecutive daysYet, potential bottom-fishers remain unconvinced, further intensifying the anxiety for those involved in leveraged tradingThe precarious nature of their positions breeds heightened concern as the market continues to fluctuate.

In recent months, leverage in the market has expanded significantly; since late September, the financing balance has spiked from approximately 1.37 trillion yuan to a whopping 1.88 trillion yuan

Advertisements

However, as of January 3, this figure still stood at an impressive 1.84 trillion yuanWhat happens when these leveraged funds begin to approach their margin call limits? The fear of forced liquidations could trigger a ripple effect.

An impending wave of selling may follow as investors begin to cut their losses or seek to collect profits, instigating a potentially chaotic sell-off pattern often referred to as "killing the bulls." Such scenarios have played out repeatedly in market history; a breach of margin call levels could catapult the market into tumult.

Consequently, stakeholders with leveraged positions now face an existential dilemma

• Financial Services Go Digital: Trends and Challenges
• Can AI Drive Future Economic Growth?
• Fed Cuts Rates, Dow Plunges 1,000 Points
• Optimizing Financial Services Based on Diverse Needs
• Quant Investing: The Rise of Algorithms and Data

A rebound, if it occurs, could prompt a deluge of sell ordersPresently, a significant number of investors are still in profit, leading to heightened stakes for upcoming trading sessions.

Thus, the question arises for many: if the A-share market sees a resurgence, should one sell or buy? To cut losses or to hold on?

First and foremost, it's essential to acknowledge that there are no universal answersEvery investor's situation is unique and will necessitate different actions based on their individual portfolios and risk tolerances.

For instance, if an investor believes that their holdings are undervalued with promising futures—maybe they have a good repertoire of defensive stocks—they might choose to hold firm, undeterred by potential further declines

Some might even capitalize on the situation, increasing their stakes in companies they’ve long monitored.

Conversely, for those who possess smaller cap stocks, holding on becomes a more complex decisionShould the investor have invested considerable time evaluating and selecting these stocks, they may still choose to retain their positions despite any drops, recognizing the fundamental value within them.

The crux of survival in this market, regardless of one’s position, perhaps lies in the avoidance of leveraging ones’ investmentsFor many, leverage is seen as a tool to enhance returns only under highly certain circumstances and not as a regular strategy.

Moreover, it is vital to recognize leverage's addictive nature

Investors often find that while they can generate quick gains through leverage, they could also face severe setbacks—bankruptcy is a real outcome for manyHistorical precedents reveal that whatever can happen, will eventually happen.

Just as wielding a knife can lead to miraculous gains, fostering dependence on that avenue can obscure judgement and lead to dire consequencesOnce an investor steps onto the slippery slope of leveraging, it’s exceedingly difficult to extricate themselves from that path.

Even as a trader familiar with futures—as leverage remains integral—the perspective gained over years recommends caution

Utilizing leverage must be measured, mindful, and should not be approached lightly.

Ultimately, for those carrying leverage, liquidating those positions represents the wisest course of actionIf confident in selected equities, then trust your instincts, stay the course, and minimize unnecessary movementsHowever, for those uncertain about their holdings, there lies a vital question to confront:

If your positions continue on a downward trajectory and necessitate liquidation, who will you choose to sell?

Recognizing the answer mandates immediate action

A recent interview with a prominent investor, Duan Yongping, amplifies this need—his wise counsel emphasizes: identifying an issue and ceasing acts causing loss offers the most minimal path to recovery.

For individuals finding themselves unable to comprehend their holdings, the recommendation is the complete liquidation of their portfolioSubsequently, they should meticulously seek out businesses whose fundamentals they can appreciate and understand, investing in those for the long term.

For newcomers in the investment scene, I would propose adopting a guiding principle in stock selection: will this company still exist ten years from now?

Apologies for the verbose content; often what seems like trivial discourse hinges upon principles that are easier said than done