The ongoing bull market has entered its second phase, marked by inevitable adjustments and diverging opinions among investorsHowever, within this stage, there remain structural opportunities that can be leveraged for strategic positioning ahead of the anticipated third phase of the bull run.
Since September 24, a series of robust monetary and fiscal policies has been implemented, enhancing market sentiment and reinforcing a self-sustaining positive outlook among investorsAs the market has transitioned into this second phase of the bull market, these fluctuations were anticipated, signaling a typical market behavior during such vibrant conditions.
When drawing on historical comparisons, analysts at Zheshang Securities liken the current market dynamics to those witnessed during the "Four Trillion Bull Market" of 2008-2009, suggesting that major indices, particularly those represented by the Shanghai Stock Exchange 50, could approach critical Fibonacci retracement levels seen since 2021, marked by a 0.618 decline
The forecast suggests a possible three-phase market movement ahead, with expectations for price surges followed by corrective waves after the National Day holiday.
Reflecting back on the four major bull cycles in the A-share market since the initiation of the stock split reform in April 2005, the characteristics of these phases are worth notingThe first cycle, termed the "Reform Bull," commenced on June 6, 2005, and concluded on October 16, 2007, wherein the Shanghai Composite Index soared from 998 points to a peak of 6124 points—a remarkable increase exceeding fivefold over approximately 862 daysThe second bull market emerged post the global financial crisis in November 2008 when the Chinese government launched a massive 4 trillion yuan stimulusThis phase commenced on November 10, 2008, and ended on August 4, 2009, characterized by a 95.1% increase in the index from 1782 to 3478 points over 267 days.
As cycles progressed, the third bull market began on July 20, 2014, bolstered by an extension of margin trading rules
- Dollar Retreats, Oil Prices Rebound
- The Downfall of Japanese Automotive Giants
- Slight Decline in the Dollar Index
- Dollar/Yen Hits Five-Month High
- Embrace Change with Patience
This cycle peaked on June 12, 2015, after propelling the index from 2049 to 5178 points over 326 daysThe fourth cycle, known as the "Blue Chip Bull," was sparked by a significant monetary policy adjustment on January 4, 2019, which saw the People's Bank of China unexpectedly cut reserve requirementsThis period extended over two years, buoyed by the expansive monetary measures responding to the COVID-19 pandemic, resulting in the index rallying from 2441 to 3732 points, marking a gain of over 50%.
Historical patterns indicate that bull markets often emerge in conjunction with both structural reforms within capital markets and an environment of liquidity expansionAnalysts at Zheshang Securities assert that current market sentiments echo those witnessed in 2008, where a steep market decline was initially followed by a significant rebound due to policy stimulus.
China Merchants Securities notes that such bursts of growth following prolonged corrections, spurred by policy catalysts, are not novel phenomena in the market's history
Similar instances occurred in 1999's "519 Rally," the reversal seen on July 22, 2005, a notable surge following the onset of the 2009 New Year, and the striking increases observed post the 2014 and 2019 holidaysIn each case, these sharp upward movements were typically followed by intense market fluctuations or adjustments, which eventually gave way to a longer-term upward trajectory—a pattern suggestive of "sharp rises—stage adjustments—extended main upward waves."
Currently, opinions from Citic Construction Investment highlight a transition from the first phase's "lightning battle" to the second stage characterized by a tug-of-war market dynamicThe present trend suggests that the indices may experience short-term volatility; nonetheless, this also indicates a preparatory phase for the potential configuration for the upcoming third segment of the bull market.
Recent trading data reveal a cooling off of market exuberance
For instance, on September 30, total trading volume across all A-shares reached an impressive 2.6 trillion yuan, which was further eclipsed on October 8 with nearly 3.5 trillion yuan in daily turnover—a historic high reflecting significant sentiment leapsHowever, trading volumes progressively receded over the subsequent days, with figures dropping to 1.6 trillion yuan by October 11. Interestingly, statistics from Founder Securities on October 16 indicated a trading volume of 1.3896 trillion yuan, underscoring a comparative drop from previous highs yet retaining substantial channels for potential future growth.
Huatai Securities points out that while market turnover has decreased, it appears to have stabilized, potentially indicating a transition into a "new stability" phase for liquidity conditionsThe focus going forward must include monitoring two types of incremental capital flows: inflowing northbound investment and the progressing involvement of policy-supportive funds—particularly as the range of reforms continues to evolve.
In terms of investment strategies, Zheshang Securities advises that during the initial bull market phase, a broad sector rebound was evident, driven by both financial and consumer sectors, creating a foundational base for significant allocations
In this transition phase, post-adjustment differentiation in performance is expected to unfold, directing investor attention towards sectors likely to follow the trajectories of "virtual preceding reality," and emphasizing fiscal backing in selection processes.
Citic Construction Investment adds that insights into fiscal policy developments are becoming clearer, with domestic demand recovering within cyclical trends, indicating that transactions surrounding inflation may emerge as a leading theme in the marketImmediate objectives should then focus on maintaining robust positions in stocks showing performance resilience as revealed in third-quarter reports.
Meanwhile, China Merchants Securities suggests that successful stock strategies are increasingly tied to macroeconomic stability and supportive policies