As soon as the A-shares market opened today, the office immediately filled with the sound of people gasping in unison, "Did it really collapse?", "Is the bull market over in just a few days?"

On the first day of the post-2000s generation entering the stock market with new hope, they also received the most precious lesson. On the second day of the explosive historical volume and falling market, it is highly likely to face a heavy blow.

Sure enough, A-shares ushered in the first correction of the bull market today, with the Shanghai Composite Index falling by 6.62%, the Shenzhen Component Index falling by 8.15%, and the ChiNext Index falling by 10.59%. The transaction volume of the three markets in Shanghai, Shenzhen, and Beijing was 2.97 trillion yuan, a reduction of 517 billion yuan compared to the previous day.

More than 5,000 stocks fell across the market, and the number of stocks that hit the limit down reached as high as 858, showing that the correction of the bull market is also very frightening.

Under the huge shock adjustment, the "bull market flag bearer" securities sector ushered in the first wave of differentiation. East Money rose by 2.22% today, with a transaction volume as high as 90 billion yuan, breaking the historical single-day transaction volume record of 69.99 billion yuan set by PetroChina on November 5, 2007.

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CITIC Securities rose by 1.22%, with a transaction volume closely following, reaching as high as 42.197 billion yuan. Behind the huge transaction volume, it is enough to see the fierce degree of the battle between bulls and bears.

Is the first correction of the bull market a car reversing to pick up people?

01

The historical trend of the bull market in A-shares

It is said that the bull market has many sharp rises and falls. Learning from history can make people wise. Let's take a look at how the bull market in A-shares has been rising and falling.Seasoned stock investors should have a profound memory of the "5·19" market trend. After three years of bearish market, on May 16, 1999, the release of the "New National Six Articles" completely ignited the A-share market.

On May 19th, the Shanghai Composite Index started from 1057.7 points and soared by 66% within 31 trading days. However, entering the second half of the year, due to the lack of significant improvement in corporate operations, the market began to enter an adjustment phase, with the correction amplitude being half of the previous increase; in 2000, as the economy stabilized and rebounded, the A-share market initiated a vigorous main upward wave. On June 14, 2001, the Shanghai Composite Index reached 2245.44 points, with an overall increase of 111%.

One of the largest historical gains in the A-share market belongs to the "2005-2007" bull market. After a long bear market of four years, in January 2004, the first "National Nine Articles" was published. The A-share market hit a historical low of 998 points in June 2005, and on July 22nd, the stable growth policy began to take effect, introducing exchange rate reform and shareholding system reform policies;

The Shanghai Composite Index quickly rose by 21% in volume, then adjusted for a quarter amidst skepticism, approaching the previous low point again. The market subsequently saw a double increase in performance and valuation, initiating an epic market trend, with the Shanghai Composite Index rising from 998 points to 6124 points, an increase of 500%.

The bull market from July 2014 to June 2015: In May 2014, the second "National Nine Articles" was published. After October 28th of the same year, the central bank consecutively reduced reserve requirements and interest rates, as well as using monetary policy tools such as PSL and MLF, which played a crucial role in reversing market confidence. During this period, there were also policies like "Belt and Road" and accelerated development of mergers and acquisitions;

The A-share market started to rise from July 2014, quickly increasing by 66%, then fluctuating, and from October, it began to establish the main upward wave trend, from 2400 points to the peak of 5178 points in June 2015, surging by 155%.

Looking back at the development of these three bull markets, there is quite a regular pattern. After a long period of decline, coinciding with a significant change in policy tone, the stock market began to rise in volume, then ushered in a period of significant shock adjustment, interspersed with several sharp volume declines, followed by a缩量上涨 and缩量下跌, and finally, a new main upward wave trend.

Therefore, it is often said that bull markets are more likely to incur losses because when the bull market starts, it usually goes through a stage of explosive volume increase, followed by fluctuations and gradually entering a stage of relatively gentle upward slope, longer duration, and stronger profit effect.

After this rapid rise in the A-share market, I believe many investors have a deeper understanding of what it means to "be present when the lightning strikes."Will A-shares usher in a new mainline after the pullback?

In fact, every bull market's main wave is associated with a mainline, usually related to industrial trends. The "5·19" market was about the industrial trend of the internet, the ChiNext bull market from 2014 to 2015, and from 2019 to 2020 it was about CXO and semiconductors.

From September 24th to the present, A-shares have been in the initial stage of a bull market with everything soaring, without a clear mainline. Seizing this timely pullback to find directions with solid fundamentals and policy support is the key for what's next.

If it is confirmed that A-shares are based on a reversal logic and have a clear industrial trend, it is more important to pay attention to the space of the mainline.

The biggest beneficiary of a bull market is the securities industry, with the Securities ETF (159841) up 34.55% year-to-date.

As a new quality productive force that cannot be ignored in China's new development momentum, especially represented by the STAR Market and ChiNext, the combination of hard technology and mergers and acquisitions will have great development potential.

Because small giants in the technology field can fully utilize policy advantages, achieve low-cost financing, carry out mergers and acquisitions, integrate the industry, and enhance competitive advantages.

Let's look at the fundamentals of the dual-creation sector. To the surprise of many, ChiNext and STAR 100 are actually the only two indices with positive profit growth in the first half of this year.

For new investors, due to the 2-year trading time limit, they cannot buy ChiNext and STAR Market stocks. Given that these two sectors represent new quality productive forces, the only way at this time is to buy index ETFs. For example, the "sharp spear of 20CM" ChiNext ETF Tianhong (159977) and the Dual-Creation Leader ETF (159603).

In addition, as one of the new three, new energy is still the direction that best represents China's new quality productive force. With policy guidance for companies to produce reasonably, the two major photovoltaic leaders have already started to raise prices and no longer engage in price wars. As long as there is no excessive internal competition, it will not be difficult for new energy companies to make profits in the future. It is worth studying the Photovoltaic ETF (159857).From a medium-term perspective, the increase in medical and pharmaceutical demands due to an aging population, as well as areas related to national security such as military and information technology innovation, are also worth close attention, especially the biopharmaceutical sector.

Global primary financing and investment in biopharmaceuticals are already bottoming out and gradually warming up. Coinciding with the Federal Reserve's first interest rate cut in four years, CXO companies primarily engaged in overseas business are expected to see a further recovery in order growth. At the same time, the introduction and implementation of policies supporting the innovative drug industry across various regions and sectors in China may also lead to an improvement in domestic demand. The National Pharmaceutical Index tracked by the Biopharmaceutical ETF (159859) has risen by over 30% in the past month.

In addition to these, domestic semiconductors continue to bear the "hope of the whole village," and the direction of national security is unwavering.

Looking at today's market, despite the significant fluctuations with the Shanghai Composite Index down by 6 points and the ChiNext Index down by 10 points, there are still more than 10 semiconductor industry ETFs that hit their daily limit up, and the Chip Industry ETF (159310), which has hit the limit up for four consecutive days, has seen the index it tracks rise by nearly 60% since September 24.

03

Is the A-share market rebounding or reversing?

Although the most significant characteristic of a "crazy bull" market is its rapid rise and fall, some stock investors jokingly say, "The worry is that we go crazy before we become a bull."

How to view this round of market movement, is it a rebound or a reversal?

There is a heated debate: "In the end, a crazy surge just leaves a mess," "Without fundamentals, where does the bull market come from"...

It cannot be said that the above statements are unreasonable, but everything must be discussed based on the actual situation.Over the past three years, China's economic recovery has consistently shown a pattern where the supply side has performed better than the demand side. In the middle of this year, this situation underwent a subtle change, with sustained weak demand beginning to drag down the supply side. This can be seen from the fact that in June of this year, the growth rate of retail sales in first-tier cities all turned negative.

With the real estate market entering a downcycle and the stock market adjusting for three consecutive years, the most noticeable pain has been felt. As the main force of consumption, with damaged balance sheets, even the introduction of more trade-in policies may have limited effectiveness.

Individuals also make rational choices: reducing consumption, repaying loans early, and increasing precautionary savings. Personal deposits increased by 8.95 trillion yuan to 146.80 trillion yuan in the first seven months of this year. Capital has flooded into the bond market, leading to the emergence of an "asset drought."

The rational choices of individuals to cut back on spending, when aggregated, become a fallacy of composition, forcing businesses to reduce costs and increase efficiency, which in turn affects residents' incomes, and ultimately, no one can remain unaffected.

In the first half of 2024, the overall performance of listed companies in the A-share market was poor, with total revenue of 34.87 trillion yuan, a year-on-year decrease of 0.51%. Net profit: 2.9 trillion yuan, a year-on-year decrease of more than 3%.

A turning point may occur at this time.

The new ideas revealed at the September 24 press conference and the early convening of the September 26 Politburo meeting focus on the demand side, aiming to stabilize the real estate market, boost the stock market, and reduce the debt pressure on businesses and residents.

Therefore, a core logic for the rise in A-shares is the expectation of improvement in the balance sheets of residents and businesses, and the expectation of credit improvement (everyone is willing to spend money).

Only after residents' willingness to consume is activated can a positive cycle be hoped for. The next core of demand improvement is to increase residents' income, with the key being the revenue and profitability of businesses, and it will be necessary to observe whether corporate profits can rebound.

However, whether the profits of listed companies can improve in the future, and whether nominal GDP can rise, no one knows. This is a matter of probability, and we can only see how it goes as we move forward.Conclusion

Another significant change in this round of policy shift is that since last year, the decision-making layer's attention to the capital market has been continuously increasing. This year, the central bank innovatively introduced two structural monetary policy tools to support the stock market, which is unprecedented.

Upon careful reflection, real estate has been an important carrier for the accumulation of domestic residents' wealth effects in the past. A survey by the People's Bank of China in 2020 showed that the average total assets of urban resident families were 3.179 million yuan, of which 70% were real estate.

With the mention of "housing is for living, not for speculation" and the real estate market entering a long-term downward cycle, the policy's focus on the capital market at this time is actually to guide residents' wealth into the stock market.

The key to this becoming a reality is whether the stock market can bring wealth effects, that is, whether the stock market can continue to rise.

Wealth effects are definitely not achieved overnight. It's not that the A-share market has performed well in the past two weeks, everyone has money in their pockets, and they are all happy to go shopping, enterprises also have income, everyone continues to buy A-shares, and then the wealth effect arises...

In fact, many investors couldn't hold on and cut their losses before September 24th. In the first half of this year, net redemptions of active equity funds by fund investors amounted to 519.8 billion yuan. Under such circumstances, it is definitely difficult for the wealth effect to benefit 200 million stock investors and 700 million fund investors in the short term.

From the perspective of policy, it is certainly not hoped to lead to a crazy bull market, but a sustainable and healthy slow bull market.

The September Politburo meeting once again emphasized efforts to boost the capital market, focusing on guiding medium and long-term funds into the market.After a week of frenzied growth in the A-share market, news reports such as "Do not misinterpret the central bank's monetary policy tools" and "Strictly prohibit bank credit funds from entering the stock market in violation of regulations" already indicate the attitude of the regulators.

If we clearly understand that the biggest goal of this round of policy is to improve domestic demand, does it mean that even if the short-term effects are not obvious, the policy will continue to be intensified until the goal is achieved?

The whole market is waiting for a signal. Today, during the trading session, the State Council's press office announced that a press conference will be held on October 12 to introduce the situation related to "increasing the counter-cyclical adjustment strength of fiscal policy and promoting high-quality economic development". (End of the article)