At the end of September, supported by a series of heavyweight policies, the bullish sentiment in the capital market was fully activated, with A-shares, Hong Kong stocks' major indices all entering a technical bull market. The trading volume on Friday also reached an unprecedented 2.6 trillion. At present, investors are most concerned about what to focus on and how the market will evolve in the future. Drawing lessons from history may provide some clues.

Non-bank financial institutions performed strongly in the early stages of the bull market.

A bull market is a subjective perception and a vague concept, with the core being strong profit-making effects. The superficial characteristics include rising indices, the majority of stocks increasing, and external funds entering the market. A-shares have historically experienced two typical prolonged bull markets with high increases, occurring from June 6, 2005, to October 16, 2007, and from July 2014 to June 2015.

Affected by factors like the equity split reform and RMB appreciation, the A-share market welcomed a magnificent bull market from 2005 to 2007. The Shanghai Composite Index surged from around 1000 points to over 6000 points, with an all-time high of 6124 points yet to be surpassed. In this bull market, non-bank financials, nonferrous metals, and defense military industries all saw increases of over 1100%.

Influenced by factors such as the Shanghai-Hong Kong Stock Connect, Shenzhen-Hong Kong Stock Connect, and loose monetary policies, the A-share bull market of 2014 to 2015 reopened. The Shanghai Composite Index rose from around 2000 points to over 5000 points. According to data from East Money Information, the leading sectors in this bull market were technology and media, with gains of over 340%.

According to statistics from East Money Information, in the 2015 bull market, the non-bank sector showed significant advantages in the early (2014/07-2014/10) and established stages (2014/10-2015/01). In the established stage, securities, insurance, and diversified finance saw gains of 104.4%, 76.6%, and 50% respectively, far exceeding the 35.8% increase in the Shanghai Composite Index.

How to grasp the market rhythm?

In the long run, the interpretation of a good market typically goes through the initial gentle rise, the mid-term rapid increase, and the late-stage volatile consolidation. Among them, the mid-term rebound has the strongest amplitude and the longest duration.

Different factors have different decisive influences on the market at different stages. According to the research report released by Huajin Securities on September 28th, after the historical bottom of A-shares, the three stages of rebound are characterized by focusing on policies in the early stage, fundamentals in the middle stage, and fundamentals and external events in the late stage.

In the early stage of the rebound, significant positive policies and external events are the core factors affecting the market. In the middle stage of the rebound, fundamentals are the core driving factor for further rise in A-shares, while the sensitivity of A-shares to negative policies or events decreases. In the late stage of the rebound, A-shares are primarily influenced by external events, fundamentals, valuation, and other factors.

In terms of the rhythm of the rebound, Huajin Securities pointed out in the research report that after each market surpasses the bottom and tends to seek relatively stable investment opportunities, in the early stage of the rebound, pro-cyclical financials, real estate, cyclical, and consumer performance is superior. After the rebound stabilizes, during the mid-term period of rapid upward movement when the index stabilizes, industries with upward trends have better performance. In the late stage of the rebound, during the phase of topping out, industries with high prosperity perform better.

Huajin Securities believes that the current rise is still in the early stage and is likely to continue in the short term. Post-holiday, it may enter the mid-term rebound, so in the short term, financials, real estate, and core assets are preferred, while technology and other small and mid-cap growth stocks are worth considering.

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