Over the past three decades, the performance of the A-share market has been marked by distinct phases of bullish and bearish trends. The A-share market has experienced shorter bull runs compared to prolonged bear markets, leading to significant volatility. Investors, market analysts, and financial institutions alike have lamented the lack of a sustained upward trajectory—the so-called “slow bull” that promotes gradual and steady growth in stock prices. The prevailing sentiment both in authoritative media and scholarly discussions is that such a pattern would be beneficial for long-term economic health.
To illustrate this point, we can compare the characteristics of the A-share market with those of the American stock market. According to a domestic research institution, the average duration of bear markets in the A-share market spans approximately 27.8 months, amounting to a staggering decline of about 56.4%. On the other hand, bull markets last an average of 12.1 months with an impressive gain of 217.2%. This paints a picture of a market that experiences bear phases that are 2.3 times longer than bull runs, a characteristic of large fluctuations and rapid market swings.
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Conversely, in the U.S. market, bear markets last an average of 18 months with a decline of 31.5%, while bull markets last roughly 47 months, generating a more modest gain of 122.5%. Here, bull markets exceed bear markets in duration by a factor of 2.6, highlighting a healthier, more stable investment landscape in the U.S.
This begs the question: what underlying factors prevent the A-share market from achieving a similar slow bull trend? To explore this, one must consider the roles of three primary stakeholders: individual investors, listed companies, and regulatory authorities.
The majority of investors in the A-share market are individuals. Reports indicate that as of the second quarter of 2024, institutional investors represented just 48.99% of holdings, while individual investors accounted for 28.15%. Foreign investors, domestic professional institutional investors, and other entities made up a smaller portion of the market, which indicates a notable imbalance. In stark contrast, institutional players dominate the U.S. market sphere, constituting around 60% of the market share. This ideological divergence fosters an environment where individual traders are disproportionately influencing market prices, leading to volatility.
Individual investors, driven by the desire for rapid returns, contribute to a culture of speculation within the A-share market. Transaction volumes from individual investors reach as high as 82%, with a staggering annualized turnover rate of 189.6%—a figure that dwarfs that of the American markets. Short-term speculative trading often undercuts the significance of fundamental analysis, driving prices based on market sentiment rather than the actual financial health of companies. When sensationalist promotions and market rumors gain traction, the rush to capitalize on fast returns often results in drastic fluctuations, further solidifying the A-share market’s reputation for instability.
One stark example of this phenomenon occurred with the recent debut of a company named “Hong Sifang.” On its initial trading day, the stock price skyrocketed more than 22 times within hours, reflecting pure speculative frenzy. Although the stock experienced a drop by the end of the session, it still closed at a staggering 1917.42% above its initial offering price. Such extraordinary returns tempt individuals into chasing quick profits, often at the cost of sound investment strategies.
Investors, fueled by the thrilling prospect of short-term gains, often overlook the potential for steady wealth accumulation through stable investments. This ‘fast bull’ mentality has created an environment rife with short-lived highs and harsh corrections, leaving many investors vulnerable to significant losses.
From the standpoint of listed companies, the atmosphere created by a ‘fast bull’ market is equally attractive. Company executives, who frequently hold substantial shares in their companies, stand to benefit immensely from high stock valuations, often cashing out shortly after substantial price increases. Instances of major shareholders announcing their intention to reduce holdings have become increasingly frequent, particularly during periods of market growth initiated by government policy changes.
For example, the case involving Gree Electric Appliances paints a vivid picture. Between 2018 and late 2021, Gree Electric was a significant shareholder in a rival firm, Haier, where it held over 10% of the shares. As Haier’s stock price increased dramatically, Gree took the opportunity to sell off its shares, realizing considerable profits while leaving retail investors vulnerable to market corrections. This cycle is repeated in numerous scenarios across the A-share market, where fast-moving valuations provide opportunities for listed companies and their executives to profit at the expense of everyday investors.
On the regulatory side, the China Securities Regulatory Commission (CSRC) has faced criticism over its inability to foster a stable market environment. Despite the regulatory body’s role in overseeing market dynamics and striving to ensure fairness, many argue it has not done enough to encourage the long-term growth strategies that would cultivate a “slow bull” environment.
Several scholars have highlighted issues such as the inadequacies of the stock issuance and delisting systems, emphasizing that the current framework hampers the evolution of a sensible market economy. It continues to favor established companies while stifling innovative startups—essentially perpetuating an environment where lower-growth, lower-potential entities thrive.
Moreover, the legal system surrounding the financial markets remains underdeveloped, with insufficient penalties for misconduct, resulting in an environment where fraudulent actions lack true repercussions. In contrast, the American market enforces stricter regulations against securities fraud, deterring misconduct and fostering a culture of compliance.
Additionally, the influence of mainstream media has been remarkable, often exaggerating market trends and propelling speculative behaviors instead of nurturing a sustainable investment culture. This phenomenon has contributed to significant distortions in market behavior, aligning it more closely with the policies of the day rather than sound economic principles.
In practice, it is essential that the CSRC transition to a more passive role in market oversight, focusing less on immediate stock performance and more on creating a framework within which sustainable practices can flourish. This approach would empower market forces to dictate valuations, allowing investors to engage in more rational decision-making processes.
Ultimately, the investment landscape in the A-share market continues to be fraught with challenges. Retail investors must approach their strategies with caution—eschewing fads for fundamentals, and favoring long-term holdings over speculative “quick flips.” By adopting a more measured perspective and potentially diversifying their portfolios through passive index funds, individual investors can better weather the market’s inherent volatility and seek stable returns over time.
In conclusion, while the regulatory framework and investor behavior currently favor short-term speculation, there exists a pressing need for transformation. Only through concerted efforts towards enhancing market conditions, establishing more robust legal protections, and nurturing an investment culture focused on value and stability will the dream of a sustainable “slow bull” market become a reality.