Will the current bull market continue?

After the holiday, the A-share market has entered a fluctuating mode, changing from the previous upward momentum. Last week (October 11th), the Shanghai Composite Index once fell below 3200 points. Under the tug-of-war between bulls and bears, today (October 15th), the three major stock indices fell again. After the initial universal rise and repair, the market seems to have entered a "tug-of-war" phase.

Today, Xiao Xia plans to review the market with everyone to see how the market performed after those sharp rises in history and to find ways to cope with the current situation.

1

After the sharp rise

Looking back at this round of the market, the Shanghai Composite Index has risen sharply from a low of 2761.37 points to a high of 3674.40 points since September 24th, with a more than 900-point, 33% increase in just six trading days.

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Looking back at the historical performance of the Shanghai Composite Index, we can find three similar rounds around the current period: around April 1996, around January 2009, and around January 2019.

The commonalities of these periods with the current situation are mainly three aspects:

Before the reversal, the index valuation was at the historical bottom.The first phase of the market reversal sees a rapid rise in the index.

Before the rise, the market experienced a depletion-style decline.

In these three rounds of rapid increases, the Shanghai Composite Index's gains all reached 30%-35%; more importantly, after each of the three sharp rises, the market entered a period of consolidation, with adjustments concentrated around 15%.

Additionally, if we observe the duration of the index's rise and pullback, although each phase varies in length, the time for each round of ups and downs has a certain symmetry: the rise and adjustment times in 1996 and 2009 were relatively short, while the rise time in 2019 was longer, followed by a longer pullback time.

2

Consolidation reveals the main trend

Compared to focusing on the market's consolidation patterns after a sharp rise, it is more important to see the structural differentiation that emerges in the market during this phase, and after the interval adjustment, the main trend eventually emerges.

In this review, we focus on two windows after 2000 to see how the market "consolidates to reveal the main trend."

2009-2010: Coal and non-ferrous metals become the main trendAfter the first round of rapid market lift, a structural shift was welcomed amidst fluctuations.

At that time, following the financial crisis, the policy front was fully relaxed, with a four trillion stimulus for infrastructure and real estate, making cyclical sectors the main theme of the market at that time; in the second "main rise phase," resource stocks represented by coal and nonferrous metals achieved significant excess returns.

From 2019 to 2021: semiconductors, electric vehicles, and consumer upgrades became the main theme.

Similarly, the most recent bull market also saw a differentiation and shift in structure following a market correction.

At that time, China's traditional economic growth momentum continued to accelerate, and the logic of consumer upgrades unfolded; entering 2021, under the "dual carbon" policy, the carbon-neutral industry chain took over the upward trend. In this "main rise phase," the ChiNext Index showed excess returns.

If we broaden our perspective, it is not difficult to find that behind each bull market in A-shares, there is a corresponding leading industry, and these industries reflect the core driving force of the era at that time.

The main theme of a bull market comes from the industrial cycle. What is the "Chinese story" behind this round of investment? It is believed that after experiencing differentiation and unfolding, the truth will eventually be revealed.How to Respond to Market Volatility?

While the pullback after a sharp rise can be seen as a form of market self-regulation, the reality of volatility is hard to ignore. To face it with equanimity, Xiao Xia offers three small suggestions:

1. Adhere to investment discipline and remain calm.

Rapid increases may to some extent overdraw the space for phased rises. The unfolding of market cycles is often not smooth sailing but rather a journey filled with twists and turns. Those who feel they have "missed out" need not be overly anxious in the short term, as the market is never short of opportunities.

2. Use leverage cautiously.

Volatility in the bottom right interval often amplifies. Once unreasonable financing and leverage are employed, complex mindsets and emotional changes can easily distort trading actions, which can more readily amplify damage and lead to "permanent loss of principal."

3. Self-examination and emphasis on asset allocation.

In the long run, about 90% of investment returns come from successful asset allocation. Among the many factors affecting investment returns, stock selection and timing are uncontrollable. Only asset allocation is the one controllable factor for investors. The more confusing the times, the more one should ignore the noise and adapt to changes through diversified allocation.

Recognize risks before taking action.

"The market has risks, and investment requires caution" is the most common risk warning, but many people do not truly understand its meaning, only realizing it when they experience a downturn.

"The Oracle of Omaha" Warren Buffett once said, "The real risk comes from not knowing what you are doing." The latter half of this statement can be interpreted as: if you are aware of the volatility you need to bear, then market pullbacks are not a real risk. It is hoped that everyone can achieve a state where they are not greedy due to sharp rises and not fearful due to pullbacks.Looking ahead, the market may continue to experience a state of fluctuation and tug-of-war, making it difficult for the index to rise significantly in the short term under the current stock market game. However, at the same time, after making profits earlier, funds have a higher risk appetite, and a strong willingness to trade may give rise to structural and thematic opportunities.

In terms of investment direction, attention can be paid to the potential main lines of independent control (chips) and consumption under the great power game, as well as the cyclical and real estate directions that benefit from policy shifts, and brokerage firms and undervalued small and medium-sized companies that benefit from the expansion of macro liquidity.

In terms of specific operations, we might as well be patient with the fluctuations that may occur in the future market, try to avoid chasing rises with large positions, and consider buying in batches when the price is low or using a fixed investment method for layout.