January witnessed all main Index fell in China’s market, especially those with a higher proportion of small-cap stocks such as CNI 2000. The lacklustre economic rebound has eroded the earnings of Chinese firms, notably undervalued Chinese stocks, indirectly leading to subsequent ‘Snowball’ knock-in and hedging costs rising. 

The recent falling dominoes in China's market resemble the US quant meltdown of 2007, suggesting that short-term retracements are only a small part of a long history. China remains to be a hotbed for Alpha, with high volatility, rapid turnover, and distributed volume. As the economy recovers and the market corrects under the new chairman of the CSRC, we estimate that Alpha can be restored shortly. Managers with robust risk control systems will eventually gain recognition from the market.