A flurry of operations fierce as a tiger, only to find the profits between 0-5, is the true portrayal of many stock investors in this market trend.
This is still on the better side; many investors who rushed to open accounts and leveraged their investments after the National Day holiday have suffered significant losses.
The investment guru Graham once said: "Bull markets are the main reason for ordinary investors' losses."
This market trend has taught ordinary people a big lesson: haste cannot be afforded when dealing with hot tofu.
In just a few days, too many people flooded in, reaching a level that might have taken half a year or a year to achieve in an instant, thus overshoot the mark. The inevitable result is a heart-wrenching, sharp adjustment for ordinary investors.
Some say that this bull market is over and that it will be a long time before being stuck again.
In fact, this is not the case; the significant retracement is just a reasonable adjustment for the previous sharp rise. The foundation for the bull market in A-shares has always been there, and after a collective surge, the market will shift into a differentiated trend.
Next, it will be a new phase in searching for market alpha.
Which sectors are worth paying attention to?
01Do not underestimate the momentum of this bull market.
Over the past 30 years in the A-share market, there have been three distinct major bull markets and numerous industry upcycles, which have closely aligned with the economic and industrial development cycles of the country. For instance, industries such as the internet, large-scale infrastructure, real estate, new energy, consumer goods, and the 4G/5G sectors have all experienced significant cycles within their respective industries.
Take the major bull market from July 2005 to October 2007, where the Shanghai Composite Index (SCI) soared from 998 points to 6,124 points, with the highest increase exceeding five times its original value. During this period, a multitude of industries including manufacturing, real estate, energy, and infrastructure securities saw their market capitalizations skyrocket by tens of times in just a few years. Roughly estimated, there were over 120 companies whose stock prices increased by more than tenfold.
In the minor bull market from May 2014 to June 2015, the SCI rose from around 2,000 points to 5,178 points, more than doubling in value; the ChiNext Index (CNE) jumped from 585 points to 4,037 points, with the highest increase reaching 5.9 times. During this time, industries such as the internet, securities, manufacturing, consumer goods, and technology saw a large number of companies with stock prices increasing several times or even tens of times within a year, especially in the ChiNext Index, where stocks increasing tenfold in a year were not uncommon.
Additionally, from October 2018 to 2021, the ChiNext Index climbed from 1,184 points to 3,576 points, with the highest increase reaching two times, thanks to market rescue measures and the continuous advancement of technological innovation and industrial upgrading. Key industries such as energy, automobiles, photovoltaics, pharmaceuticals, and the internet also saw a significant number of super blue-chip stocks.
During this period, in the Hong Kong stock market, sectors like internet technology, healthcare, and consumer goods were the golden era for companies valued at tens or even hundreds of billions, with tech giants like Tencent, Alibaba, Meituan, Pinduoduo, and NetEase rivaling the prominence of the U.S. stock market's "Seven Sisters."
Setting aside various thematic concepts and short-term fluctuations that cause disruptions, anyone who managed to catch one or two of these market or industry cycle trends could easily achieve investment returns of several times or even dozens of times.
Returning to the current A-share bull market trend.
The greatest confidence stems from the country's unprecedented clear policy stance on "boosting the stock market" and a series of extremely strong measures. When a matter is imbued with the will of the nation, it can be said that its success is inevitable.
With so many strong counter-cyclical economic policies and unprecedented innovation reforms at the stock market level, and given that the stock market was already in a long-term downtrend, fulfilling negative expectations, it can be said that the policy bottom and market bottom of the stock market are now unbreakable.In fact, since "924," more than 500 individual stocks in the A-share market have increased by over 40%, accounting for more than 10% of the entire A-share market. Among them, dozens of companies have seen their stock prices double during this period, reflecting that investors remain full of confidence.
Therefore, never underestimate the strength of this bull market. A significant correction could very well be a good opportunity to get back on board.
02
Alphas Worth Paying Attention to in the Market
After a collective sharp rise, the market will inevitably shift to a structurally differentiated trend.
At this stage, it is time to look for sectors with the best certainty of growth and elasticity, and recently there has been a continuous rotation of themes such as finance, real estate, information technology innovation, semiconductors, and the internet.
Behind the themes and concepts is actually the market's pursuit of alpha with better elasticity.
So in the early stages of a bull market, in terms of market sectors, the ChiNext and STAR Market will perform relatively better than the main board.
Since its inception in 2010, ChiNext has had more than 1,300 companies, giving birth to nearly a hundred companies with a cumulative market value increase of more than four times, including nearly 30 super growth blue-chip stocks with a cumulative increase of more than ten times, such as InnoLight Technology, New Easy Sheng, East Money, Xingqi Eye Medicine, Sunshine Power, and Tonghuashun, a proportion that is not inferior to the Nasdaq in the U.S.
Although the STAR Market was established later than ChiNext, it currently has nearly 600 listed companies, and many have also stood out in recent years. For example, in the chip field, there are SMIC, Sugon Information, Montage Technology, and China Resources Microelectronics; in the AI field, there are Kingsoft Office and Cambricon; in consumer electronics, there is Transsion Holdings; in the innovative medical field, there are BeiGene and United Imaging; and in the new energy field, there are Jinko Energy, Daqo Energy, and Astom. Among them, quite a few have already doubled their market value since listing.From a macro perspective, the companies listed on the Science and Technology Innovation Board (STIB) not only enjoy the opportunity of a general rise in valuations as the A-share market begins to usher in a long-term slow bull market, but more importantly, they benefit from the country's strategic layout to vigorously promote the development of scientific and technological innovation, which brings significant dividends.
In today's turbulent international competitive landscape, with the intensification of the China-US rivalry and continuous suppression in domestic high-tech fields, there is an urgent need for high-end manufacturing, strategic emerging industries, and others to become new drivers. Leading high-quality development with scientific and technological innovation is not only a choice for economic development but also a consideration for national security strategy.
These new industrial pillars include the "five major kings" sectors of pharmaceuticals and healthcare, electronics, computers, manufacturing, and new energy, and the new batch of potential seeds in these fields are largely concentrated on the STIB.
There are also a large number of potential seeds that, despite experiencing continuous stock price declines after listing, have high-quality business tracks and strong industry competitiveness.
Similar to these core quality seed companies, there are also those on the main board and the ChiNext board that have fully demonstrated their growth potential. Therefore, for such enterprises on the STIB, future growth is also expected.
03
What can be specifically observed?
Of course, for ordinary investors lacking professional investment research capabilities and investment experience, it may be quite challenging to continue to achieve ideal investment returns in the A-share market, which has already seen a collective surge and is now entering a stage of differentiation. This is especially true for the STIB, which emphasizes concentrated technology, healthcare, and many other growth tracks, making the difficulty of stock selection relatively greater.
Therefore, it is not the most prudent for ordinary investors to bet on individual stocks; instead, it is more appropriate to allocate to indices. Although this may miss the super surge of a single stock, the advantage lies in the diversification of risks, which is worry-free and effort-saving.
In my view, when it comes to the relatively growth-oriented and certain sectors in the A-share market, the STIB will be a potential direction that is no less than the ChiNext board. Investors may wish to pay attention to ETFs related to the STIB Innovation and Entrepreneurship 50 Index and the STIB 100 Index.The Science and Technology Innovation Entrepreneurship 50 Index is composed of 50 large-cap emerging industry stocks selected from the Science and Technology Innovation Board and the ChiNext Board. The index heavily invests in stocks from the electronics, power equipment, and pharmaceutical and biological industries, encompassing popular themes such as new energy vehicles, semiconductors, and innovative drugs.
The Science and Technology Innovation 100 Index is currently the first and only mid-cap style index on the Science and Technology Innovation Board. It selects 100 medium-cap stocks with good liquidity outside the Science and Technology Innovation 50 sample as its constituents. Over 80% of the companies in the index have a market capitalization of less than 200 billion yuan. The index focuses on new productive forces, lays out high-growth science and technology dark horses, and covers strategic emerging industries and high-tech industries such as artificial intelligence, semiconductor chips, innovative drugs, and new energy.
Moreover, and more importantly, over the past two years, the fees for many ETFs have significantly decreased, resulting in lower holding costs.
Today, two more 20CM broad-based ETFs announced fee reductions. Huaxia Fund announced that the management fee for its Science and Technology Innovation 100 ETF Huaxia and Science and Technology Innovation Entrepreneurship 50 ETF and their linked funds has been reduced from 0.50% to 0.15%, and the custody fee has been adjusted from 0.10% to 0.05%. The relevant fee reductions have reached the lowest industry standards.
The Science and Technology Innovation 100 ETF Huaxia (588800) and its linked funds (Class A: 020291, Class C: 020292) track the Science and Technology Innovation 100 Index with a maximum fluctuation limit of 20%.
The Science and Technology Innovation Entrepreneurship 50 ETF (159783) and its linked funds (Class A: 013310, Class C: 013311) track the Science and Technology Innovation Entrepreneurship 50 Index with a maximum fluctuation limit of 20%.
Both of these 20cm broad-based ETFs have an annual management fee of 0.15% and a custody fee of 0.05%, which is equivalent to a 70% reduction in the original management fee and a 50% reduction in the custody fee.
Broad-based ETFs tracking the same index tend to have similar market performance and return expectations. Under similar conditions of management scale and market liquidity, lower management fees and custody fees not only benefit investors but also enhance their own competitiveness, resulting in a win-win situation.
Industry insiders have pointed out that the reduction in ETF fees will have a positive impact on the market, helping to attract medium and long-term funds to increase their allocation of equity assets. These "patient capitals" are conducive to the formation of a "slow bull" market in the future and also help to reduce market volatility.Conclusion
The market has recently experienced increased volatility, and everyone should avoid the pitfalls of chasing gains and cutting losses. Trading is not a race, but rather a boxing match. The market will throw iron punches to strike you and do its utmost to defeat you. To win, you must stand unscathed in the ring when the bell rings at the end of the 12 rounds.
Now, the A-share market is once again facing a definite bull market opportunity. It might be time to change your investment mentality: instead of chasing gains and cutting losses, calm down and look further into the future. Focus on capturing the most certain potential sectors and adopt a long-term approach to catch the big fish.
Leave a Reply