Ningquan Asset's Clear Retreat: Steering Clear of Overheated Sectors

In its recently released semi-annual investment report for 2026, Ningquan Asset, founded by veteran investor Yang Dong, delivered an unusually stark warning to the market. The report's core message highlights the structural risks in the current A-share market, unequivocally stating its withdrawal from investing in a large number of popular stocks.

Valuation Bubble Reaches Dangerous Levels

The report suggests that share prices in certain hot sectors have severely diverged from their intrinsic value, creating a significant valuation bubble. Ningquan Asset assesses that these stocks are highly likely to face a deep correction, with potential declines reaching 80% to 90% or more. This projection is not alarmist but is based on historical patterns of bubble bursts and the current extreme valuation levels.

"We do not possess the ability to pull chestnuts from the fire and emerge unscathed," the report explained regarding its exit decision, emphasizing that continued participation at such high risk would be irresponsible to fund holders.

Evolving Market Structure Amplifies Crash Risks

Beyond valuation concerns, the report delves into how changes in market microstructure could exacerbate a potential crisis.

  • Growing Influence of Quant Funds: As quantitative strategies account for an increasing share of market trading, their homogeneous trading behaviors could trigger a cascading sell-off during a market reversal, accelerating the downturn.
  • Hyper-Speed Information Flow: The internet and social media enable market sentiment and negative news to spread at lightning speed. This could lead to panic spreading far more rapidly than in any previous era, making adjustments more violent and unpredictable.

The Tipping Point May Be Imminent

The report raises a crucial alarm: a stock price collapse does not require a deterioration in company fundamentals, such as slowing demand growth or a surge in competitive supply. The fact that prices have already over-discounted years of future growth can be sufficient to trigger a bubble burst.

Given the current extent of "crazy differentiation" in the market, Ningquan Asset worries that the turning point may not be far off. This warning implies that traditional fundamental warning signals relied upon by investors may fail, and the market could enter a violent adjustment at any time due to issues within the trading structure itself.