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A-Share Market In China Hasn't Reached The Bottom Yet

Summary

A-Share Market In China may keep falling.

The A-share market is occupied by the companies with the market capitalization of RMB0-5 billion.

Investors should wait longer.

The sell-off in Jan. 2016 has trembled most of the investors with fear in China. Should the investors be a bottom fisher now or wait for a clear signal to make any decisions when the stock is struggling to rise to 2,800? We can analyze the data from the distribution of market capitalization in July and Aug. in 2015.

Actually, we can learn from the shrinkage of market capitalization in China A-share market. According to figure 1, the stock market began to show a rapid upward trend in June 2014. Till June 2015, the stock went up to 5,178. The market capitalization was up in over 280% in just one year from RMB 27 trillion to RMB 76 trillion.

Moreover, we marked down the closing market capitalization and the closing quotation indexes in June 12, July 9, Aug. 18, Aug. 26 and Dec. 23 in 2015. The closing quotation indexes were all the high and low indexes in the range. According to the growth of market capitalization and the ratio of SPO, when the market capitalization vaporized 20% to 30%, the index and some individual stocks would bounce. And the bounce would change along within time.

In July 9 and Aug. 18, the indexes only bounced for 5% while in Aug. 26, Dec. 23, it bounced for 31.2%, performing better.

Figure1:

Date

2014/6/20

2015/2/9

2015/5/7

2015/6/12

2015/7/9

Market capitalization (RMB trillion)

27.0389

41.1042

57.0961

76.0542

53.0819

Closing quotation index

2010

3049

4108

5178

3373

Evaporation of market capitalization/the bounce rate

N/a

52%

38.9%

33%

-30%

Date

2015/8/18

2015/8/26

2015/12/23

2016/1/27

 

Total market value(RMB trillion)

55.7408

43.8903

57.5911

43.4262

 

Closing quotation index

4006

2850

3684

2638

 

Evaporation of the stock value/the bounce rate

5%

-21%

31%

-25%

 

According to the ratio of market capitalization, we can observe that there is a certain link between the ratio of market capitalization range and the fluctuations. The larger the ratio of the companies' market capitalizations of RMB 0 - 5trillion are, the lower the index is. That is to say, most of the market capitalizations of the companies are in the range of RMB 0 - 5 billion, which means that the stock can be able to fall further.

Figure2:

Figure3:

According to the data in Jan. 27 2016 from figure 2 and 3, the market capitalization of the companies of RMB0-5 billion occupied 32% in the Shanghai Composite Index and Shenzhen Composite Index, which was closed to the percentages 35% in July 9 2015 and 38% in Aug. 26 2015.

However, the market capitalization of the medium companies of RMB5-10 billion occupied 36% in Jan. 27 2016, a little bit higher that 30% earlier.

All in all, judging from the range of market capitalization, we cannot tell that the stock has dropped to the lowest in Jan. But one thing can be sure that it is almost the bottom.

Figure 4:

 

2014/6/20

2015/2/9

2015/5/7

2015/6/12

2015/7/9

Closing quotation index

2010

3049

4108

5178

3373

RMB 0-5 billion

61%

44%

24%

7%

35%

RMB 5-10 billion

22%

29%

34%

31%

30%

RMB 10-20 billion

10%

16%

23%

32%

19%

RMB 20-30 billion

3%

5%

8%

13%

7%

RMB 30-50 billion

2%

3%

5%

9%

4%

RMB 50-100 billion

1%

2%

4%

5%

3%

Over RMB 100 billion

1%

2%

3%

4%

2%

 

2015/8/18

2015/8/26

2015/12/23

2016/1/27

 

Closing quotation index

4006

2850

3684

2638

 

RMB 0-5 billion

23%

38%

14%

32%

 

RMB 5-10 billion

35%

30%

39%

36%

 

RMB 10-20 billion

23%

18%

27%

20%

 

RMB 20-30 billion

8%

6%

9%

6%

 

RMB 30-50 billion

6%

4%

6%

4%

 

RMB 50-100 billion

3%

2%

3%

2%

 

Over RMB 100 billion

3%

2%

3%

2%

 

According to the data in Jan. 27 2016 from figure 2 and 3, the market capitalization of the companies of RMB0-5 billion occupied 32% in the Shanghai Composite Index and Shenzhen Composite Index, which was closed to the percentages 35% in July 9 2015 and 38% in Aug. 26 2015.

However, the market capitalization of the medium companies of RMB5-10 billion occupied 36% in Jan. 27 2016, a little bit higher that 30% earlier.

All in all, judging from the range of market capitalization, we cannot tell that the stock has dropped to the lowest in Jan. But one thing can be sure that it is almost the bottom.

Figure 4:

 

2014/6/20

2015/2/9

2015/5/7

2015/6/12

2015/7/9

Closing quotation index

2010

3049

4108

5178

3373

RMB 0-5 billion

61%

44%

24%

7%

35%

RMB 5-10 billion

22%

29%

34%

31%

30%

RMB 10-20 billion

10%

16%

23%

32%

19%

RMB 20-30 billion

3%

5%

8%

13%

7%

RMB 30-50 billion

2%

3%

5%

9%

4%

RMB 50-100 billion

1%

2%

4%

5%

3%

Over RMB 100 billion

1%

2%

3%

4%

2%

 

2015/8/18

2015/8/26

2015/12/23

2016/1/27

 

Closing quotation index

4006

2850

3684

2638

 

RMB 0-5 billion

23%

38%

14%

32%

 

RMB 5-10 billion

35%

30%

39%

36%

 

RMB 10-20 billion

23%

18%

27%

20%

 

RMB 20-30 billion

8%

6%

9%

6%

 

RMB 30-50 billion

6%

4%

6%

4%

 

RMB 50-100 billion

3%

2%

3%

2%

 

Over RMB 100 billion

3%

2%

3%

2%

 

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.