Quantitative transactions are prone to cause problems such as transaction convergence, increased volatility, and violations of market fairness.
On September 7, the trading volume of the two cities exceeded the trillion yuan mark for 35 consecutive trading days. The Shanghai stock index rose by 1.51%, approaching the stage high in February this year, and the Shanghai and Shenzhen 300 index also approached 5,000 points. The net inflow of northbound funds that day was nearly 6.069 billion yuan, and the cumulative net inflow so far in the third quarter has exceeded 70 billion yuan.
On the one hand, there is a booming market, and on the other, there is frequent naming and quantitative trading. On September 3, a message stating that “quantitative trading contributed half of the trading volume of A shares” was swiped on the screen, and some even pointed out that quantification was an “AI harvester” and subjective investment would be harvested; on September 6, the chairman of the China Securities Regulatory Commission, Yi Huiman said: “In mature markets, quantitative trading and high-frequency trading are more common. While enhancing market liquidity and improving pricing efficiency, it is also easy to cause problems such as transaction convergence, increased volatility, and violation of market fairness. In recent years, Quantitative trading in the Chinese market has developed rapidly.” This has caused the market to worry about the sustainability of the market.
Organizations interviewed by China Business News believe that quantitative trading volume accounts for about 20% to 25%, far from the rumored 50%, and there are excessive concerns about quantitative or impacting the market. Senior global macro trader Yuan Yuwei told reporters that from the perspective of algorithmic trading characteristics, quantification generally follows the trend (for example, helping to increase small and medium market value stocks), rather than creating trends, but the style of large-cap stocks in the day reverses, or the quantification of exposure to small market values Long and neutral funds have formed a short-squeeze effect, causing them to adjust their positions within the day, which intensified the rotation of the large market outperforming the small market during the intraday market. Compared with overseas markets, China’s quantitative unfairness lies more in the lack of a T+0 trading system and short-selling mechanism in the country, which makes it difficult and costly to raise securities. “The quantitative advantage now lies mainly in T+0 and shorting the runway. Strategy. An example is that the performance of overseas quantitative institutions in A-share products is significantly better than overseas products.” He said.
Recently, the continuous trading volume of the A-share market has exceeded one trillion, and the two extreme voices of worship and fear of quantification have revived in the market. Since the beginning of this year, due to the increase in the prosperity of small and medium-sized market capitalization stocks and other reasons, institutions have issued a large number of index-enhanced products (mainly enhanced by the CSI 500 index), and they have obtained excess returns through programmatic transactions, a large number of programmatic transactions and T The +0 strategy increases the turnover rate and volume.
The market’s concern is that if the status quo of quantitative Baotuan’s small and medium market value is reversed, it may cause the impact of the “Baotuan flash collapse” of large market value stocks at the beginning of the year. However, CBN previously reported that “AI harvesters” “quantitative transactions account for about 50%” and other judgments are distorted. Major quantitative agencies have stated that this number is significantly overestimated. And from the current perspective, the market is still expected to continue. The track of small and medium-sized market capitalization stocks is longer. There is no partial grouping of large-cap stocks by public funds at the beginning of the year, and the rotation is relatively faster.
According to feedback from some sales channels, quantitative transactions account for about 20%. In addition, quantification itself has scale limitations. In terms of channel agency products, the enhancement of CSI 500 has begun to be closed one after another, because after the market boom and scale expansion, there is no profit at all. “Therefore, the quantification agency began to switch to CSI. 1000, and even began to implement a market-wide stock selection strategy. As a result, due to the stronger industry share restrictions on small market capitalization stocks, compared with the enhancement of traditional indexes, the volatility may be greater.” Huanyi Investment Chairman, Chief Investment Official Gao Shan told reporters.
So who is leading this year’s fast-moving sector rotation market? “This year’s market is actually not quantitatively dominated. It is actually driven by macro transactions, foreign investment and public offerings.” Yuan Yuwei told reporters, “The falsification and decline of the’Mao Index’ led to the flow of funds to small and medium-sized enterprises, and then quantitatively expand the scale. The trend is strengthened. Macro policies that support small and medium-sized enterprises, encourage technological innovation, and ensure internal circulation will also allow liquidity to flow toward growth and small market value factors. Quantification benefits from exposure of small market values, not that they actively drive the style rotation, but passive In fact, there is no need for artificial intelligence and machine learning optimization this year. It is estimated that the quantitative fund will perform well with the old strategy of 2015.”
CBN also previously reported that the rise of small and medium-sized market capitalization stocks has caused many quantitative institutions to “turn over.” In January of this year, the 100-billion-dollar private equity market known as the “Chinese version of the Renaissance” abandoned its long-held strategy of multi-medium-small-cap and short-cap, and turned to “group stocks”. However, in the large fluctuations that began in late February, The net worth retracement is obvious. However, after the second quarter, the excess income of Mingluo Index increased significantly. “This is related to the switch of market style. The performance of small and medium caps has begun to be strong again, and the institutional model may also be upgraded.” An insider in the industry told reporters.
“A large part of the quantitative funds sold are actually smart beta (market fluctuations). Whether it is really alpha (excess return), it will have to go through several bull-bear cycles and style rotation tests. 2021 is the year when the macro average returns. It is destined to have large/small caps, value and growth, cycle and growth, high-quality and low-quality, and various rotations are intertwined.” Yuan Yuwei mentioned.
Where does the quantitative “unfairness” come from?
Although heavier trading volume and acceleration of rotation are not part of the quantification, and the increase in high-frequency trading will enhance market liquidity and reduce systemic risks, there is indeed a certain consensus in the industry that “quantification violates market fairness”.
Yuan Yuwei said that the fundamental reason for the existence of quantitative trading “prone to cause transaction convergence, increased volatility, violation of market fairness, etc.” is that in the context of the lack of the overall T+0 trading system in the market and the difficulty of securities lending, quantitative transactions have been mastered. These track advantages.
Some industry insiders also mentioned to reporters: “Most traders are unable to conduct effective short-selling and short-selling. As a result, longs can rely on their financial strength to monopolize the bargaining chip, thereby obtaining asset pricing power-the previous public fund “group” is also typical. Quantitative agencies Similarly, as the scale of quantification expands, their pricing power for small and medium-sized stocks is getting higher and higher.”
“Whether the index is strengthened or the T+0 strategy of neutral funds is superimposed, it is actually largely due to the dependence on the scale of self-built bottom positions, or due to the high turnover, the quantification agency monopolizes the securities dealer’s originally small securities pool. As a result, they have innate advantages in selling high and buying low or short individual stocks (intraday).” Yuan Yuwei said, “This is actually the fact that investors rely on the scale of funds to bypass the A-share T+1 system and short-selling mechanism in a flexible mode. The limitation of the market has formed the advantage that the starting line is higher than other investors. If market participants can all T+0 and short-selling securities, the current quantitative fund performance will be significantly affected.”
In the past two years, US stocks have outperformed A-shares in the same period, but foreign quantitative giants have poor performance in overseas products, and Chinese products have performed well. This may also prove the above view in disguise.
Statistics show that in the first half of this year, Citadel’s overseas strategy made a profit of 4.4%, Two Sigma was flat, Renaissance made 1.1%, and Milliennium made 6.5%. The A-share products of these institutions are obviously much better than overseas products. Last year, Renaissance Overseas’ beta and alpha products lost approximately 31% at the same time.
Coincidentally, Wang Shuyi, chairman of Chunpu Investment, a private equity firm with both active management and quantitative management, told reporters that quantification itself is not a problem, but there are fairness issues. Efficiency does not care about fairness, and at the same time, the establishment of a quantitative system should be strengthened to take precautions.
Market style in the fourth quarter or switch again
The more concerned question is, as the market continues to hit new highs, will the market style switch again in the fourth quarter? Where to switch?
The answer for most organizations is yes. Meng Lei, A-share strategist at UBS Securities, told reporters that in the first half of 2021, the earnings growth rate of the Sci-tech Innovation Board, ChiNext Board, and Main Board reached 104%, 34%, and 43%, respectively, an increase of 299% over the same period in 2019. , 70%, 17%. The high profit growth of “Entrepreneur and Entrepreneurship” this year is one of the main reasons for it to outperform the market. However, considering that interest rates may not continue to decline in the short term, “Entrepreneurship and Entrepreneurship” has gradually lost its most important driving force. . “We believe that the market style may switch in the fourth quarter of this year.”
In his view, as the overall profit growth slows (and the base effect is also higher), “high-quality growth” consumer stocks with stable long-term growth prospects may return to the market focus. “In fact, the industry’s rotation has accelerated recently. We suggest that long-term investors can gradually increase their holdings of’high-quality growth’ consumer stocks when valuations become more attractive. And the pharmaceutical sector and the electronic sector within the ChiNext may have structurally higher valuation opportunities, and investors are advised to select stocks with stable fundamentals and earnings growth that matches the valuation.”
Coincidentally, Takasugi previously mentioned to reporters that consumption may indeed diverge (depending on performance). “For example, there is not a big problem with high-end liquor, and the fundamentals of profitability have not deteriorated seriously. It is just that the’sauce and wine fever’ should not be overly hyped, and there may be disorderly expansion of production capacity in the future; another example is some foods that’lay down and make money’ during the epidemic last year. For companies, some target earnings have grown at a rate of over 20%-25% for two consecutive years, but now their share prices have been discounted. These are expected to usher in valuation reshaping. At the same time, some small home appliances are also expected to rebound.” Return to Sohu to see more
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