Trading A-shares Amid Volatility: Strategies

Amid the booming trend of A-shares, newly listed stocks have remained highly active, with numerous stocks beginning with "C" witnessing substantial increases.

On October 8, the A-shares continued their upward trajectory, with over 5,000 stocks rising across the board and a trading volume exceeding 34.5 trillion Yuan, setting a new record. Meanwhile, the newly listed stocks sector continued to thrive with significant fluctuations throughout the day. After a collective surge in the morning, stocks like C Changlian (301618.SZ) and C Hehe (688615.SH) triggered trading halts due to their sharp rise, only to experience a quick drop upon resuming trading, followed by another rally in the afternoon, with gains narrowing as the day progressed.

By the close of trading on the 8th, the Wind Newly Listed Index recorded a closing price of 31,854.31 points, up by 15.93%. Among them, C Hehe, C Changlian, and C Wulian (301551.SZ) rose by 42.85%, 32.69%, and 25.97%, respectively. On the last trading day before the holiday, these three newly listed "C" stocks saw gains surpassing 100%, with C Changlian surging over 1700% on its debut.

In an interview, Zhang Yulong, Chief Analyst for New Stock Strategy at CITIC Construction Investment, noted that the policy shift in the week prior to the holiday led to a transition in risk appetite within the capital market from pessimism to optimism, resulting in a shortsqueeze-style rally. Investors accelerated their allocation towards A-share equity assets, which increased interest in newly listed stocks that do not have limit fluctuations, especially under circumstances of consistent trading halts for gains.

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According to interviewees, the rise and fall of new stocks can be seen as a "thermometer" for market sentiment. Amidst a bull market driven by both sentiment and capital, interest in newly listed stocks that are exempt from trading limits has evidently increased, leading to an influx of speculative capital that significantly boosted their prices. However, opinions regarding the future trend of new stocks are divided among market participants.

Two newly listed stocks have accumulated gains exceeding 2000%.

In the context of the soaring A-share market, the newly listed stock sector has recently experienced a continuous rise. Overall, since September 24, the Wind Newly Listed Index has seen six consecutive trading days of gains, with a cumulative increase of over 50%.

Specifically, the recently listed C Changlian, C Hehe, and C Wulian (301551.SZ) have all achieved substantial increases. Notably, C Changlian, which debuted on September 30, soared over 1700% on its first day, marking the highest debut gain of any new stock this year. Both C Hehe and C Wulian were listed on September 26, with first-day gains exceeding 105% and 318%, respectively.

As of October 8, C Changlian and C Wulian have both accumulated price increases surpassing 2000%, while C Hehe has risen by 534.29%. Furthermore, the market capitalization of all three "C" stocks has exceeded 10 billion Yuan, with C Wulian’s total market value exceeding 91.2 billion Yuan.

"Compared to other sectors, newly listed stocks tend to have smaller circulation, making them more susceptible to capital-driven spikes in the absence of trading limits. When the overall market's risk appetite is high, the gains of newly listed stocks often surpass those of traditional blue-chip stocks," Zhang Yulong opined, suggesting that the significant rise of new stocks indicates an optimistic market sentiment. Conversely, in a pessimistic market, new stocks tend to exhibit a more subdued performance and even risk falling below their issue price.

"Currently, the market remains in a phase driven by sentiment and capital, fostering a robust speculative atmosphere where many newly listed stocks and those with poor performance have surged noticeably, outpacing high-quality blue chips and attracting more speculative funds, creating a positive feedback loop," commented Xue Hongyan, Deputy Director of the StarMap Financial Research Institute. However, he noted that such rapid gains are hard to sustain; as market euphoria wanes, the fundamental performance of companies will likely return as a key anchor for stock valuation. Without fundamental support, the performance of newly listed stocks and poorly performing stocks will struggle to maintain momentum, posing significant risks.

What are the prospects for the market trajectory of new stocks?

As of September 30, there were 69 new stocks listed on the A-share market this year, with an average first-day gain of 157.54% and an average gain of 189.76% since listing. The number of new stock listings in August and September was tallied at 8 and 9, respectively, showing an increase compared to April through July, while the average first-day gain in the past two months was 238.30%.

Wind data indicates that companies such as Qiangbang New Materials, Shanghai University Holdings, Topcloud Agricultural Co., and Suzhou Tianmai, as well as New Aluminum Era, are currently awaiting their IPOs, with Topcloud having conducted its online issuance on October 8. Upcoming new stock issuance in October includes Suzhou Tianmai and New Aluminum Era.

According to CITIC Construction Investment's analysis, the issuing scale of new stocks expanded in September, with an increase in the degree of deviation in new stock pricing.

In September, there were 10 new stocks listed, and 11 new stock offerings, collectively raising 5.619 billion Yuan, an increase from August's 4.323 billion Yuan. The average pricing deviation of new stocks issued in September was slightly higher, with the five newly priced stocks having an average deviation of 121.18%, up from the previous month's 118.83%. Additionally, new stock returns in September have slightly declined. If all applications were successful, the new stock returns for A and B class accounts in September were 0.1881% and 0.1365%, respectively.

Given the booming conditions of A-shares, what does the future hold for newly listed stocks? According to Xue Hongyan, the current bullish conditions in the A-share market are unlikely to become the norm, and a pattern of alternating gains and declines is more probable. As the stock market returns to normal, IPOs will also likely revert to a more regular pace. The primary driving forces behind this rally appear to be the micro-ecological improvements within the stock market and a reinforced commitment from listed companies to reward shareholders, making it difficult for the environment supporting speculation to persist; high-quality companies strongly backed by fundamentals are likely to lead the market. Once new stock listings become more routine, speculative activities regarding new stocks will unlikely dominate the market.

However, Zhang Yulong argued that amid stringent regulations, new stocks this year have been priced significantly lower than those of last year, with the fundamentals of IPO companies being comparatively strong. As performance continues to improve, market valuations are expected to rise, leaving room for sustained growth in new stock prices.

"Firstly, the pricing of IPOs must be reasonable; under tight regulations, the pricing of new stocks will closely reflect their fundamentals without excessive deviation. Secondly, since new stocks typically do not have trading limits for the first five trading days post-listing, their gains can be considerable. Additionally, the current pace of new stock issuance is lower than before, making them potential good investment choices under conditions of scarcity," said Zhang Yulong.

Moreover, he added that new stocks experience considerable volatility, and participation in new stock investments requires investors to thoroughly understand this volatility, possess advanced trading skills, and be adept at navigating overall market changes. For average investors, it is crucial to implement robust risk mitigation strategies, and it is advisable to choose investments that align with their risk-return profile.