Guoxin Strategy: Recent adjustments are like thunderstorms in the bull market; the outlook remains optimistic and positive.

Since March 2026, the Shanghai Composite Index has seen a maximum decline of nearly 10%, briefly falling below 3800. After a rapid market adjustment, voices suggesting a shift from bull to bear are beginning to arise. We believe that it is not yet time for a trend reversal towards pessimism; the recent market consolidation is more akin to a phase of thunderstorms, and after the wind and rain, sunshine will return.

1. Learning from History: It is Not Yet the Season for Bull to Bear Transition

Historically, the transition from a bull market to a bear market is driven by a resonance of macro and market factors. Viewing the market through a cyclical lens, the cyclical pattern of bull and bear markets in A-shares has always objectively existed. The patterns of bull and bear cycles are akin to the cycles of the four seasons, with bull markets resembling summer, bear markets resembling winter, and volatile markets resembling spring and autumn. What are the signals marking the seasonal transition from a bull market to a bear market? A review shows that the transition from bull to bear in A-shares often occurs when the overall market sentiment is overheated and the macro environment shows clear signs of weakness.

Taking the bull market of 2019-21 as an example, the market had accumulated significant gains and valuations were already high (as detailed in Table 1). From a macro perspective, the pandemic in 2022 disrupted domestic production and business activities, and alongside the outbreak of the Russia-Ukraine conflict in February 2022, prices of commodities such as crude oil surged, prompting the Federal Reserve to initiate a rate hike cycle. The weakening of both internal and external factors triggered the transition from bull to bear at that time.

Looking at 2013-15, in June 2015, regulators required securities companies to conduct self-checks on external access and to clean up off-exchange financing. The de-leveraging in the stock market tightened the micro liquidity and triggered a liquidity crisis, with the margin financing balance dropping by more than 700 billion yuan within a month from its peak in June 2015. Similarly, the market was already in an excited state, so the sudden withdrawal of micro liquidity initiated the bear market.

Finally, examining the bull market from 1999-2001, the market environment was characterized by concerns over the significant impact of large non-tradable shares being listed under the backdrop of state-owned share reductions, while strengthening financial regulation became a key policy focus that year to prevent illegal funds from entering the market. By June 2001, the valuation of the A-share index had reached a historical high, and a series of institutional reforms led to the onset of the bear market.

The current bull market that began on September 24 has not ended. This bull market started on September 24, 2024, and the macro background is similar to the bull market initiated on May 19, 1999, as both were driven by macro policies aimed at combating deflation. As mentioned earlier, the transition from bull to bear often occurs during periods of deteriorating macro conditions and overheated market sentiment; currently, neither of these conditions is met.

From a macro perspective, policies from China and the US are expected to continue a loose and proactive stance in 2026. In China, the current CPI is still hovering at a low year-on-year level, with the PPI remaining negative, and both housing prices and loan growth rates have hit new lows. This indicates that anti-deflation policies need to be strengthened, and the policy tone remains positive. In the US, although recent geopolitical conflicts have caused a slight adjustment in rate cut expectations from the Federal Reserve, if the geopolitical situation gradually becomes clearer, there remains room for further loosening of overseas liquidity.

From a market perspective, compared to historical bull market peaks, the current bull market’s temporal and market sentiment has not yet reached extremes. From the perspective of market duration, the three typical A-share bull markets mentioned earlier lasted over 24 months, with the average rise of Wind All A being 151%. As of March 23, only 18 months have passed in the current market, with a rise of 58% in Wind All A, indicating substantial room compared to historical bull market durations. From the perspective of market sentiment, as of March 23, the overall A-share PE ratio was 21.7 times, and the risk premium rate was 2.8%, which still shows a certain gap compared to the historical peaks of bull markets in 2007, 2010, 2015, and 2021, indicating that current market sentiment has not yet reached extremes.

2. Nature of Fluctuation: Thunderstorms in the Middle of a Bull Market

History shows that severe phase adjustments often occur in the mid to late stages of a bull market, corresponding to the fourth wave of technical analysis in a bull market. Since the recent adjustment is not a signal of the transition from the current 924 bull market to bear, how should we understand this pullback? In fact, reviewing history, a complete bull market is not a straight path, especially in the mid to late stages of a bull market, where nerve-wracking “thunderstorms” are common, as shown in Table 3. For example, during the mid to late period of the bull market from 2019 to 2021, the market saw significant pullbacks in August 2020 and February 2021, triggered by tightening liquidity conditions. Similarly, in the mid to late period of the 2013-15 bull market, noticeable pullbacks occurred in January 2015 and May 2015, driven by regulatory de-leveraging. Likewise, in the mid to late period of the 1999-2001 bull market, pullbacks occurred in August 2000 and February 2001, triggered by regulatory and external environmental shocks.

According to wave theory, a bull market can be divided into five waves, with waves 1, 3, and 5 being upward waves, and waves 2 and 4 being correction waves. Therefore, the significant adjustments that occur in the mid to late stages of a bull market correspond to the fourth wave of correction. From a technical analysis perspective, the Shanghai Composite Index at 2689 points on September 24, 2024, marks the starting point of the first wave of this bull market, while the index at 3040 points on April 7, 2025, corresponds to the starting point of the third wave upward. Currently, the market is most likely in the phase of the fourth wave correction. If we compare the current bull market that originated from September 24, 2024, with the bull market from May 19, 1999, the adjustment since January 2026 may resemble the adjustment from August 2000 to February 2001.

From the perspective of annual volatility, the market remains optimistically active this year. Additionally, when viewed from an annual perspective, the A-share market has historically exhibited large fluctuations, even in typical bull market years, significant intra-year pullbacks are commonplace. Reviewing representative years from past bull markets, the amplitude from the annual lowest to highest points of major indices is often substantial. For example, in the second and third years of a bull market, annual fluctuations of 30%-50% or even higher for the Shanghai Composite Index are not uncommon. The “lower shadow line” on the annual bull market candlestick is precisely a common technical feature representing the fierce tug-of-war between bulls and bears, ultimately leading to the victory of the bulls. It signifies the process of the market probing for support and regaining confidence amid panic.

Comparing with history, the current volatility of the A-share market is still at a relatively low level. Looking at the Shanghai Composite Index, since 2005, the average annual volatility, excluding extreme values of over 50%, has been 35.1%. If measured by Wind All A, the central point of annual volatility since 2005 has been 31.4%. However, since the beginning of this year, the volatility of the Shanghai Composite Index has only been 12.3%, and that of Wind All A has been 10.5%, which is significantly below the historical central level. If the index’s volatility for this year reaches the historical central levels of 20% or 30%, assuming the peak of 4197 at the beginning of the year is the highest for the year, a 30% annual volatility would correspond to an intra-year low around 2938, while a 20% volatility would correspond to a low around 3357. Currently, there are no signals that could lead the market to drop so significantly. Conversely, if the current low caused by geopolitical conflicts represents the bottom range for the year, from the perspective of volatility, there may be new highs in the future.

3. Outlook for the Future Market: Opportunities After the Rain

Chapter 5 of “Xun Yugen Talks Strategy: Less is More” proposes the concept of a three-stage theory of a bull market, indicating that a bull market can typically be divided into three phases, with the core logic being the progression of driving forces: from the initial phase of relaxed policies to the mid-phase of improving fundamentals, and finally to the late phase of accelerated capital entry. Recent market signals suggest that this bull market may be progressing into the third phase. Observing the pace of capital entering the market from the perspective of fund issuance, the average daily new issuance of equity funds in 2024 is about 1.6 billion yuan, 2.9 billion yuan in 2025, and has reached 5.2 billion yuan in the first three months of 2026.

The opportunities for sunshine after the rain include easing tensions between the US and Iran, domestic policy initiatives, and breakthroughs in AI applications. Since the bull market process is still ongoing, when will this adjustment end? Three major signals need to be monitored: firstly, a substantial easing of the geopolitical situation. Under the constraints of high oil prices and mid-term elections, the US government has a realistic demand to cool down the conflict. On March 23, Trump signaled negotiations, announcing key points for an agreement with Iran. Once substantial easing signals emerge from the external situation, the currently suppressed risk appetite in A-shares is expected to gradually recover. Secondly, domestic policy initiatives that drive a rapid recovery in fundamentals. Currently, domestic macro policies continue to have a proactive orientation; if subsequent policies lead to a rapid recovery in fundamental data, this is expected to provide support for the market. Meanwhile, this year’s Two Sessions further emphasized strengthening the inclusivity and adaptability of capital market systems. The advancement of related policies in the future is also expected to enhance the inherent stability of the capital market. Thirdly, breakthroughs in AI applications that drive a shift in market narratives. The world is currently in an upward cycle driven by the AI industry, with technological innovations entering a phase of intensive emergence. If there are breakthrough innovations at the technology industry level, especially in the AI application field with blockbuster products, market expectations for AI driving productivity improvements and macroeconomic growth enhancements are likely to further increase, which could also promote a shift in narratives within the A-share market.

In the later stages of the bull market, the market structure is expected to become more balanced, with multi-dimensional layouts. Reviewing the past two bull markets, it can be observed that in the first half, the market presents multiple structural opportunities, while in the mid to late stages, hotspots tend to be more numerous, and the market structure often becomes more divergent. In this round, the market structure has been notably differentiated in 2025, while since the beginning of this year, the market has blossomed in multiple areas, with AI applications, domestic demand sectors, and strategic resources performing in succession. Looking ahead, as this bull market unfolds into its later stages, the structure is expected to become more balanced, with three major clues to focus on:

First, the technology supply chain represented by AI applications. The world is still in an upward cycle driven by technological waves; aside from the hardware sector, which has seen significant gains in the early stages, two additional sub-sectors are worth attention: ① AI applications, which, drawing lessons from the tech market from 2012 to 2015, are likely to see technology diffuse from hardware to applications under the AI wave; ② upstream energy and electricity. With the development of AI technology and geopolitical disruptions, global energy and electricity supply continue to tighten. The country has proposed to focus on building a new type of power system, accelerating smart grid construction, developing new energy storage, and expanding green electricity applications, presenting investment opportunities in this sector. Second, the strategic resources sector related to national security. Under the complex external environment, the safety premium of resource products is likely to trend upwards for the long term, coupled with the implementation of domestic anti-involution policies and emerging demand supporting commodity prices, the strategic resource sector is expected to continue benefiting. Third, undervalued old economy assets. The indices of sectors such as liquor and real estate have already undergone several years of continuous adjustments, with valuations and fund holdings dropping to historical lows. Currently, the fundamentals of consumption and real estate show signs of marginal improvement, and the 2026 Two Sessions report prioritized “expanding domestic demand.” Under policy support and proactive catalysts, undervalued real estate and liquor sectors may have opportunities for recovery.

Risk Warning: Domestic and foreign policy processes may fall short of expectations, and economic recovery may experience fluctuations.

(Source: Guosen Securities)