Darkest before Dawn or Sun Still Setting: Shanghai Comp Loses 3000

The Shanghai Composite lost 3000 at the open. One article from China Securities Journal says don't worry, it is darkest before dawn.

iFeng: 3000点岌岌可危 但最黑暗的时刻即将过去

As time passes, various uncertainties begin to appear and the index moves downwards. One of the characteristics of the stock market last week was that the daily limit of individual stocks continued to increase. On Fridays, there were even more than 70 stocks in the two cities. The increase in limit-down shares is not unrelated to the unsustainability of trust allocations and the successive debt crisis. Since the de-levering of the capital market will continue to be firmly implemented, more and more problems will follow in the financing of non-real economy. The debt crisis will become a sharp sword that hangs on over-leveraged companies. When we choose stocks, we must Pay attention to the company's debt situation and avoid the negative impact of the Black Swan incident on our investment in a timely manner.

This is referencing the loans backed by pledged stock covered in The Bubble's Revenge: China's A-Share Market is Littered With Pledged Share Land Mines Buried During 2015 Mania

A bunch of stocks were listed in that article. I made a portfolio of 26 of them, equal weighted. The portfolio is down 2.6 percent as I'm writing. Shanghai Composite is down 1.64 percent.

Coming into Monday there were 148 stocks trading below net assets. According to the author, the market has always bottomed when this number exceeded 150.

At the index level, there will be an emotional catharsis process at the high probability of opening this week, and 3000 points will be at stake. However, the crisis is also organic, and related domestic chips and agricultural sectors will once again gain favor from the market. After the market stabilizes, it will also be the subject of short-term funds competing.

According to the data, as of June 15th, the current stocks of the two cities whose net ratio fell below 1 have reached 148, which is close to the market's low value. In the history of several major bear markets near the bottom of the region, the number of broken stocks are all over 150.

Investors can't blindly buy though because...left unsaid is what exactly are those net assets? You'll have to due your own homework to know if its a value or numbers pulled from the aether.

Today, the number of A-share stocks that have been breached has reached the “pass-through line”. Considering the increase in the number of new shares issued in recent years, there may still be a gap between the market share and the market share at that time. But on the whole, the sudden increase in the number of net stocks breached also indicates that the market may be getting closer and closer.

However, if the stock price falls below the net assets, it can be considered as a market-moving indicator. For investors who have bad performance, loss-making stocks and problem stocks, they are not allowed to blindly buy the bottom. At this stage, investors are still preferred to select high-quality stocks for configuration. Prudent investment.