Quantitative** has become the curse of A-shares**.
Text|Daily financial report Lu Mingxia.
Since Wu Qing, the new chairman of the China Securities Regulatory Commission, took office, a series of measures of the China Securities Regulatory Commission have accurately blocked a number of quantitative short-selling momentum for the capital market represented by Ningbo Lingjun, and the whole market has also stopped the trend, and the Shanghai Composite Index has finally stood at 3,000 points.
However, with the Shanghai Stock Exchange Jiulianyang, ** began to fluctuate, and the market rumored that the quantification ** was lifted, so the selling order increased sharply. Although the China Securities Regulatory Commission denied the rumors of quantitative trading, the Financial Associated Press learned in an interview that brokerages did begin to tighten the DMA business last week, only allowing institutions to operate their own funds, and the previously raised funds will be gradually withdrawn, as for the leverage ratio, it cannot exceed 1:1, and the leverage ratio of self-operated funds remains unchanged at 4 times.
On February 28, a spokesman for the China Securities Regulatory Commission said that according to the data of China Securities Inter-Agency System Shares, the scale of DMA business has declined steadily since the market opened after the Spring Festival, and the average daily trading volume accounted for about 3% of the total market turnover. He also said that the DMA business has steadily reduced leverage, which is conducive to market risk prevention and control, and is conducive to the smooth operation of the market.
In the current fragile market environment, talk about "quantitative" color change. So why does quantification have such energy to affect the capital market? What are the implications of this event for the quantitative industry, and how to examine the development of quants in China in the future?
The Origins of Quantitative Investing
Compared with overseas, the development of quantitative investment in China started late. It was only in 2005 that China welcomed the first quant** independently managed by Chinese. This ** is issued by China Investment JPMorgan** and is managed by Lu Jun, who is well-known in the private equity world. With his profound financial knowledge and unique investment vision, Lu Jun has injected new vitality into this **.
However, the good times were short-lived. Lu Jun managed CIFM Alpha In just over half a year, he chose to leave CIFM and embarked on the road of founding his own private equity company. With its superb investment strategy and sound management, he founded Calm Investment, which once ranked among the ranks of tens of billions of private equity and became a leader in the industry.
However, in the nearly four years since the issuance of CIC Morgan Alpha, China's quant market has fallen silent. In this period of the market, the sentiment of chasing up and killing down is more serious, and investors are not interested in the quantification of diversified investment. The immaturity of this market environment and the limitations of investors' cognition have caused the development of quantitative** in China to encounter certain resistance.
Until the 2008 U.S. financial crisis, quantitative investment that relied on historical data encountered Waterloo in this unprecedented "black swan" event, and a large number of highly leveraged quants** liquidated.
In this financial crisis, a large number of Wall Street companies closed down and lost talent, which also triggered a wave of financial elites returning to China.
After the baptism of the financial crisis, China's quantitative market began to gradually mature. In 2010, the first domestic index - CSI 300 stock index was born, and the neutral strategy, the intraday trend of the stock index and the intertemporal arbitrage transaction began to develop, and quantitative investment began to sprout, and then after nearly ten years of ups and downs, it was gradually recognized by some mainstream investors.
There are three main types of quantitative private equity strategies: neutral, index enhanced, and commodity trading advisor (CTA). In recent years, the quantitative index enhancement category has shined and has become the main strategy type promoted by various quantitative institutions in the market.
The index-enhanced yield consists of two parts, one is the yield brought by the rise and fall of the index itself, and the other part is the excess return brought by the trading carried out by the system's algorithm.
To measure the ability of the index to enhance **, we look at the excess return, see how high the excess return is, and whether it is stable. The reason why the index is so popular is because of the high returns.
With the money-making effect of quantification too prominent, there are more and more quantification in China.
According to the CITIC** report, as of the end of 2023, the quantitative** scale of the whole market is about 192 trillion yuan. The overall scale of public offering quantification is 316.9 billion yuan, and the scale of private placement quantification is about 163 trillion. Considering that quant ** is generally dominated by medium and high frequency trading, this also means that the influence of quant ** in the A** field is also increasing.
When quantitative regulation is in progress
With the farewell of the barbaric era, the current quantitative private equity is also encountering its own internal and external troubles.
As quantification occupies an increasingly important position in A-shares and has an increasingly important impact, in recent years, when the quantification has been repeatedly questioned, the call for more regulation of quantification at the regulatory level has also increased.
On February 17, 2023, the Shanghai ** Exchange and the Shenzhen ** Exchange simultaneously released the detailed rules for the real-time monitoring of abnormal transactions on the main boards of Shanghai and Shenzhen and the real-time monitoring rules for abnormal transactions on the Science and Technology Innovation Board.
On April 28, 2023, the China Investment Industry Association issued a notice on soliciting public opinions on the "Operational Guidelines for Private Placement**Investment** (Consultation Draft)", which puts forward standardized requirements for quantitative private equity **investment in terms of trading system security, abnormal transaction monitoring, internal management, data preservation, product naming, etc.
On September 1, 2023, the Shanghai and Shenzhen Stock Exchanges issued the Notice on Matters Concerning the Reporting of Programmatic Transactions (hereinafter referred to as the "Report Notice") and the Notice on Matters Concerning Strengthening the Management of Programmatic Transactions (hereinafter referred to as the "Management Notice"), which were officially implemented on October 9 of the same year.
The above two notices clarify specific "quantitative requirements" for programmatic transactions, that is, if the maximum declaration rate of programmatic trading investors reaches more than 300 transactions per second or the maximum number of declarations in a single day reaches more than 20,000, the exchange may take measures such as adjusting the criteria for identifying abnormal transactions and increasing the content of programmatic transaction reports, as appropriate.
Of course, the overall direction of supervision is to reasonably regulate the quantitative industry, although it has an impact, but it will not hurt the muscles and bones. Now quantification, more problems are still coming from within.
Tens of billions of private equity performance differentiation
Recently, the latest data released by the private placement network revealed the overall performance of tens of billions of private placements in 2023, and the results showed that the overall return was negative, and the proportion of positive returns was only 60%.
Specifically, as of December 31, 2023, 51 of the 85 private placements of 10 billion yuan participated in the statistics, accounting for 60%. However, this still means that a significant proportion of private equity firms have failed to turn a profit in 2023.
Among the various strategies, the performance of tens of billions of quantitative private placements is particularly eye-catching. According to the data, 32 quantitative private placements of 10 billion yuan participating in statistics will achieve 643% of the overall income, of which as many as 31 achieved positive returns, accounting for 9688%。
In contrast, the performance of subjective private placements of 10 billion yuan is not satisfactory. The overall return of the 41 participating subjective private placements of 10 billion yuan in 2023 will be -326%, only 14 achieved positive returns, accounting for only 3415%。
This result shows that the subjective long strategy will face greater challenges in 2023, and the performance differentiation between different private placements will be further intensified, with the difference between the first and last performance exceeding 40 percentage points.
In addition, the performance of 10 billion private placements using a subjective + quantitative dual-driven strategy is relatively middle. The 12 participating institutions have an overall return of -0 in 202356%, of which 6 achieved positive returns, accounting for 50%. Overall, the 10 billion-level private market in 2023 will show a clear differentiation trend.
However, at the beginning of 2024, **the two poles will reverse, and small and micro cap indices such as CSI 1000 and CSI 2000 will collectively **. As a result, quantization has also experienced a wave of dark moments.
According to channel data, the negative excess of the CSI 500 index increase products under the 10 billion quantitative private placement of Longqi, High-Flyer, Qilin, Jiukun, Zhuozhi, Wenbo and other tens of billions of quantitative private placements exceeded 10% or even nearly 20% in the last week before the festival; In the first two weeks of the Spring Festival, many private equity net values fell by as much as 20%, and many products recorded the largest decline and excess drawdown in history.
In this market environment, many quantitative strategies are failing. Quant experienced the largest excess drawdown in history, with some losing all of their gains over the past year in just three days. The once-proud excess has also collapsed on a large scale.
The sharp decline in product performance has exposed the problems and risks of quantitative private equity in terms of model setting, factor iteration, and risk control management. In this regard, a number of leading quantitative private equity companies intensively released product operation instructions, apologized to investors, and said that they would continue to optimize the details of the strategy model in the future, and adhere to their own requirements for risk control.
Many investors who have purchased quantitative private placement products have also begun to feel confused, can they continue to be optimistic about the future of quantitative **?
For the future, it is still unknown whether quantitative** can be reborn like a phoenix nirvana. According to expert analysis, although small and mid-cap stocks have been hit hard in the short term, in the long run, the fundamentals of the market have not fundamentally changed. Small, micro-cap stocks with high volatility, although they will be under more pressure when the market is down, also have the potential to be the best.
Disclaimer: This article is based on public information, and the information or opinions expressed do not constitute investment advice to anyone and are for reference only. **Material** invaded and deleted on the Internet.
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