The stock market is currently undergoing significant adjustments, and well-known financial expert Professor Liu Jipeng has articulated his views, highlighting three major factors impacting the situation: large shareholders reducing their stakes, short-selling in stock index futures, and the prevalence of quantitative trading strategies. His assessment resonates strongly with some market commentators, including one who posits that if these three elements could be paused and a T+0 trading system were implemented, the market could undergo a rapid recovery and not only reach but exceed 3,700 points, with 4,000 points also being an attainable milestone.

Since 2015, the A-share market has not witnessed a substantial bull run. In contrast, the global market has experienced leaps and bounds; the A-share market seems to have remained stagnant, reflecting a sense of detachment from the broader economic growth. This stagnation is not merely indicative of the state of the Chinese economy—considering a GDP growth rate of 5% is still considered remarkable globally—but also raises questions about the motivations behind investment choices. Despite having a staggering CNY 140 trillion in household savings, CNY 30 trillion in wealth management products, and over CNY 170 trillion in the bond market, a significant portion of this capital hesitates to flow into the stock market. A perplexing scenario unfolds where investors prefer purchasing 10-year government bonds yielding a mere 1.6% or opt for buying cross-border ETFs at a premium rather than investing in equities. This reflects not a lack of capital per se but rather a pervasive disbelief in the stock market's capacity for generating favorable returns. Investors have faced consecutive setbacks from a stagnant 3,000 points, resulting in a pervasive lack of confidence eroding sentiment and worsening the investment atmosphere.

The situation flared particularly after October 8, when those hopeful of the market began to get trapped. Such disenchantment only serves to amplify the ongoing disappointment, which could lead to irreversible damage to market morale. The urgent need for decisive action to restore confidence cannot be overstated; failure to act while investor sentiment wanes could ultimately necessitate far more drastic measures down the road at a significantly higher cost.

The dynamics of bull and bear markets are influenced by policies, fundamentals, supply, and investor sentiment. However, it’s fundamentally a commodity market where stock prices fluctuate based on supply and demand. The persistent imbalance in this supply-demand equation has impeded the market's ability to generate long-term growth. In recent years, a relentless influx of IPOs, stock issuance from companies, large shareholder divestitures, quantitative harvesting, lending of restricted shares, and short-selling via stock index futures have flooded the market with increasing amounts of stock. This has bled the market of vitality and weakened buyer power dramatically. Can the market rally under continuous pressure from such overwhelming supply?

Despite the persistently unfavorable market conditions, traders in futures are not deterred; in a bull market, they can go long, and in a bear market, they can short-sell, thus benefiting in both directions. For instance, a trader might buy stocks at a low price, later establish short positions in futures once the price surges, then profit from both the stock sales and short-selling. Meanwhile, the application of quantitative strategies creates heightened volatility, contributing further to A-shares experiencing more than a decade devoid of any major bull market, characterized instead by substantial fluctuations. Unless the structural vulnerabilities facilitating aggressive short-selling are adequately addressed, A-shares may struggle to transform into a prolonged or sustainable bull market. However, it is encouraging that regulatory authorities have recognized the importance of the stock market and are actively working to resolve deeper systemic issues, especially since Wu Qing took charge and implemented numerous reforms to mend these gaps. Yet, challenges that have accumulated over thirty years cannot be resolved overnight and will necessitate a process of healing.

Despite the grim outlook in some quarters, there is a sense of cautious optimism about the market’s potential trajectory. The momentum of capital market reforms is accelerating, with investment-side constructions being initiated orderly and various loopholes being progressively filled. There’s visible improvement in market ecology and ongoing enhancements in market order, contributing to A-shares gravitating towards healthier robustness. If such trends continue, significant systemic flaws and unreasonable short-selling mechanisms will likely be resolved in the near future. It is now imperative for A-shares to confront and resolve these issues head-on; a phase of cleansing and foundational restructuring is essential, making a long-term bull market not just possible, but a necessary outcome, albeit one desired to unfold gradually over an extended timeline.

Right now, A-shares stand at the brink of historic opportunities—though some might reject this assertion, the facts remain. The reasons include:

• The acceleration of capital market reforms is repositioning the stock market from one focused on financing to one geared towards investment, marking a transformative moment that will yield historic opportunities.
• Initial signs of efficacy in optimizing and restructuring the industry underscore a critical juncture—innovation and technological advancement require a robust stock market to support this endeavor.
• The monumental shift toward the revitalization of the Chinese nation necessitates the internationalization of the Renminbi and robust capital market expansion, identifying the stock market as a crucial component for establishing financial dominance, especially regarding asset pricing and wealth management.
• A policy framework centered around boosting consumption, stabilizing growth, and safeguarding citizen well-being calls for significant support from the stock market to create incremental wealth across society, enhancing consumer confidence and capacity; under these circumstances, the stock market cannot lag.
• Foretelling a shift in the international investment landscape, the tides will favor China. The trade surplus has reached over $7 trillion, juxtaposed against foreign exchange reserves of only $3 trillion, indicating more than $4 trillion stagnating overseas; shifts in international dynamics are expected to prompt an estimated $1 trillion to repatriate to domestic markets. With stock markets in Europe, the U.S., Japan, and India showing signs of a bubble, A-shares and Hong Kong stocks appear undervalued. As the global economy embarks on an interest rate reduction cycle, it is plausible that international capital will redirect towards China.

Based on these five points, a bullish outlook for A-shares is inevitable. The positive trajectory for medium-term trends appears firmly established, while near-term adjustments present a propitious environment rather than a cause for alarm. The likelihood of a fall below 3,000 points seems remote, and even if it were to dip below that threshold, quick recoveries would likely ensue. The broader economic narrative is progressing, signaling the end of another bearish cycle, with the government also striving for stability and progress.

It is vital to note that the above commentary reflects personal viewpoints and should not be construed as investment advice. Past performance of funds does not guarantee future results, and investors should remain cognizant of market volatility risks.