A short-term correction phase is underway, with three key issues reiterated. First, as markets reach higher levels, the importance of proactive risk management increases. Second, the supply-demand dynamics for capital remain weak. There is a divergence in the scale growth of sector ETFs, with strong sectors drawing capital away from weaker ones. Furthermore, highly focused active funds in specific niches are siphoning assets from broader sector ETFs. Such capital flows tend to amplify market divergence to extremes rather than support a broad, sustainable market breakout. Third, the overseas environment remains uncertain, with risks including disruptions to shipping in the Strait of Hormuz, potential rises in U.S. Treasury yields, and persistent concerns over monetary tightening.
In the medium term, the cycle of accumulating positive returns in the A-share market continues. The recent rally has reached a point where a qualitative change in this accumulation effect is possible. However, short-term microstructural frictions have built up, and a virtuous cycle of incremental capital inflows has yet to materialize. The conditions for opening up further upside will improve once new catalysts from industrial trends emerge, driving the next market phase and kickstarting that virtuous cycle of capital inflows.
The conditions for the end of a major bull run are considered. Historically, factors that could trigger the conclusion of such a phase include: 1. An unsustainable virtuous cycle of incremental capital inflows, exemplified by the A-share market in 2015. 2. The invalidation of a prevailing industrial trend, as witnessed in the A-share market in 2021. 3. A significant, sustained deterioration in the macroeconomic environment, such as the Nasdaq in 1998 or the A-share market in 2018.
Currently, there is limited room for regulatory tightening on sector ETFs, which have been a key source of marginal capital. Other potential sources of incremental capital—such as insurance funds, fixed-income plus strategies, and quantitative funds—are rooted in the scarcity of quality assets for households and have not yet fully entered a virtuous cycle. Upward industrial trends persist. While the macro environment faces some disturbances, these are not indicative of a trend reversal.
The major bull run is not over; it is pausing to gather strength for the next leg up. There is some market debate regarding the current stage of this major trend. To assess its potential continuation, we examine historical conditions that have ended such phases. These include the exhaustion of incremental capital inflows (A-shares, 2015), the disproving of a key industrial narrative (A-shares, 2021), and a severe, prolonged macroeconomic downturn (Nasdaq, 1998; A-shares, 2018).
Currently, no clear signals point to the end of the current major run. First, regulatory tightening on sector ETFs—a crucial marginal funding source—has very limited scope. Other incremental capital sources (insurance, fixed-income plus, quant) are based on household asset scarcity and have yet to fully engage in a positive feedback loop. Second, the AI industrial trend continues to exceed expectations. AI large language models are achieving viable cash flow, U.S. AI-related capital expenditure is strong, cloud service Q1 results beat forecasts, and AI currently complements rather than disrupts existing operations. The current valuation level is only approaching 2021 highs, and 2021 itself did not represent a fully matured major bull run. Should the AI trend be invalidated, the major run could end, but for now, the trend persists, suggesting a two-phase rally structure may continue. Third, while short-term macro disturbances exist, a severe, sustained deterioration is unlikely. Adjustments triggered by such disturbances are more likely to be corrections within a consolidation phase rather than trend-breaking declines.
Short-term momentum effects are concentrated in semiconductor equipment and areas related to computing power inflation (like PCBs, electronic fabrics). Amid Middle East risk fluctuations, the seesaw dynamic between non-ferrous metals and oil persists. For the medium term, focus remains on the inflection point for new energy sector profitability, the continued strength in new energy vehicle sales, and investment opportunities in chemicals, where improving fundamentals are coupled with the ability to pass on costs internationally.
Risk warnings: Overseas economic recession exceeding expectations; Domestic economic recovery falling short of expectations.