This article focuses on the epic bull market of 2014-2015.

I. The time range definition of the 2014-2015 "bull market"

(I) From June 2014 to June 2015: lasting for one year, ranging from 2023.74 points to 5166.35 points.

Before specifically reviewing the 2014-2015 "bull market", it is necessary to first define its starting point and end point. From a data perspective, the bull market started at 2023.74 points on June 19, 2014, and ended at 5166.35 points on June 12, 2015, lasting for one year with a gain of 155.29%.

(II) The one-year "bull market" in the upward phase can be further divided into four stages

Within the above time range, the 2014-2015 "bull market" can be segmented into four stages based on specific point changes. Specifically,

1. The first stage: from June 19, 2014 to October 9, 2014, during this stage, the stock market gradually rose, with the Shanghai Composite Index rising from 2023.74 points to 2389.74 points, an increase of about 18%, lasting for 3-4 months.

Adjustments were made from October 10 to October 26, 2014, with a correction magnitude of 4.16% over a two-week period.

Phase 2: From October 27, 2014 to January 6, 2015, during this phase, the stock market experienced a rapid rise, with the Shanghai Composite Index increasing from 2290.44 points to 3351.45 points, a growth of around 46%, lasting for 2-3 months.

From January 7 to February 5, 2015, an adjustment took place with a decrease of 8.22%, lasting for approximately 1 month.

Phase 3: From February 6, 2015 to April 27, 2015, during this phase, the stock market also showed a rapid rise, with the Shanghai Composite Index increasing from 3075.91 points to 4527.40 points, a growth of about 47%, lasting for 2-3 months.

From April 28 to May 6, 2015, an adjustment occurred with a decrease of 9.17%, lasting for 1 week.

Phase 4: From May 7, 2015 to June 12, 2015, during this phase, the stock market continued to rise rapidly, with the Shanghai Composite Index increasing from 4112.21 points to 5166.35 points, a growth of around 26%, lasting for 1 month.

Data overview: There were 3 increases of over 5%, 11 increases of over 4%, 23 increases of over 3%, and 61 increases of over 2%.

Taking the Shanghai Composite Index as an example, during the bull market from 2014 to 2015, there were 3 trading days with increases exceeding 5%, 11 trading days with increases exceeding 4%, 23 trading days with increases exceeding 3%, and 61 trading days with increases exceeding 2%. At the same time, of the 23 trading days with increases exceeding 3%, only 3 occurred in 2014.

This indicates that compared to 2014, the market sentiment in 2015 was more bullish.

How to define the epic 'bull market' of 2014-2015?

(1) Official characterization: it is both a 'reform bull' and a 'leverage bull'

There are two opinions in the market about the epic 'bull market' of 2014-2015, one believes it is a 'reform bull' and the other thinks it is a 'leverage bull'. In fact, both of these opinions were acknowledged by the authorities at the time, so it seems unnecessary to further discuss it now. For example, on March 10, 2015, the then chairman of the China Securities Regulatory Commission, Xiao Gang, explicitly pointed out in the 'Two Sessions E-Hall' that both of the above views made sense, that the stock market's rise at that time reflected expectations of the dividends of reform and was also the result of multiple bullish policies stacking up.

He believed that in that bull market at the time, the leverage factor indeed played an important role. Factors such as funds transferred by brokerage and bank securities, net inflow funds from Shanghai-Hong Kong Stock Connect, and insurance and trust funds all increased significantly. The development of finance and securities lending business was also relatively fast (with a financing scale exceeding trillions of yuan).

(2) Specific manifestations of the 'leverage bull': rapid growth of various wealth management and leveraged products under loose monetary conditions

From a data perspective, the 'leverage bull' is mainly manifested in the following aspects:

1. Substantial easing of monetary policy: continuous interest rate cuts and reserve requirement reductions

Significant easing of monetary policy is the main driving force behind the formation of the 'leverage bull'. On November 15, 2014, the State Council deployed accelerated progress in price reforms, and then the process of substantial monetary policy easing began. Specifically,

(1) The benchmark interest rates for deposits and loans were cut six times in a row on November 22, 2014, and on March 1, May 11, June 28, August 26, and October 24, 2015, each time by 25 basis points.

(2) The 7-day reverse repurchase agreement rate was cut eight consecutive times from January 22 to June 30, 2015 (from 4.1% to 2.5%).

(3) The statutory deposit reserve ratio was cut continuously from 20% to 17.5% on February 5, April 20, and September 6, 2015.

2. Various types of asset management products expanded significantly during the period of 2014-2015.

Influenced by relatively loose monetary policy and the exuberant stock market sentiment, various types of asset management products mainly aimed at leveraged expansion saw rapid growth during 2014-2015 (of course, this was also against the backdrop of the introduction of new rules for asset management later), and frequently took actions in the capital markets (such as the dispute involving Baoneng that year). Specifically,

(1) The trust asset balance increased rapidly from 12.48 trillion at the end of June 2014 to 15.87 trillion yuan at the end of June 2015, with a net increase of 3.39 trillion in one year.

(2) The size of brokerage asset management expanded rapidly from 7.95 trillion at the end of 2014 to 10.25 trillion at the end of June 2015, with a net increase of 2.3 trillion in six months.

(3) The scale of the wealth management market (including principal-guaranteed products) increased rapidly from 12.65 trillion at the end of June 2014 to 23.5 trillion at the end of 2015, that is, the scale of wealth management grew by about 11 trillion in a year and a half.

The rapid abnormal growth in financing balance occurred.

During the period of 2014-2015, under the inducement of the bull market in the stock market, the financing balance experienced rapid growth, increasing from below 400 billion in June 2014 to 2.27 trillion in June 2015. It is worth noting that in March 2015, when Chairman Xiao Gang was interviewed, the financing balance was only around 1 trillion, which means that the net increase in financing balance from March to June 2015 was more than 0.01 trillion yuan, revealing to some extent the madness of the stock market at that time.

(3) The specific manifestation of the 'Reform Bull': driven by the Third Plenary Session of the Eighteenth Central Committee, the second '9 articles' and price reform

From the timeline perspective, the market believes that the main reasons for the 'bull market' from 2014 to 2015 were mainly influenced by three events, namely the Third Plenary Session of the Eighteenth Central Committee in November 2013, the second '9 articles' released on May 9, 2014, and the clear deployment of advancing price reform at the State Council executive meeting in 2014. Among them,

1. The Third Plenary Session of the Eighteenth Central Committee passed the 'Decision on Major Issues Concerning Comprehensively Deepening Reforms', clearly proposing 'improving the multi-level capital market system, promoting the reform of stock issuance registration system, promoting equity financing through multiple channels, developing and regulating the bond market, increasing the proportion of direct financing... promoting two-way opening of the capital market, orderly increasing the convertibility of cross-border capital and financial transactions, establishing a sound management system for external debt and capital flows under a macro-prudential framework, accelerating the realization of renminbi capital account convertibility', laying the foundation for the subsequent release of the second '9 articles'.

However, due to the absence of substantial policies being implemented, the capital market did not show significant reactions.

2. The full name of the second '9 articles' document is 'Several Opinions on Further Promoting the Healthy Development of the Capital Market', with its core content being expanding market opening in both directions, encouraging mergers and acquisitions, mixed ownership, relaxing private placement approval, proposing a steady promotion of stock issuance registration system, etc. Subsequently, the Securities Regulatory Commission began to modify and improve relevant policies of the capital market in line with the spirit of the second '9 articles', launching Shanghai-Hong Kong Stock Connect, introducing ETF options, private equity fund filing system, launching SSE 50 and CSI 500 stock index futures, streamlining administrative approval matters, which to some extent stimulated market sentiment.

3. On November 15, 2014, the State Council executive meeting deployed to accelerate price reform, allowing the market to have a greater say in pricing, clearly stating to 'steadily open up the vast majority of professional service prices that are not directly related to residents' living,' followed by a significant acceleration in the process of interest rate liberalization, with a noticeable increase in the frequency of rate cuts, to some extent stimulating the market.

III. A Brief Description of the Basic Situation of the 'Down Cycle' in 2015

(I) Down Cycle: Experienced three rounds of rapid decline within half a year (coming fast, going even faster)

Following the peak of the A-share market on June 12, 2015 (On June 13, the China Securities Regulatory Commission stated on Weibo, 'Prohibiting securities companies from facilitating off-exchange margin trading activities'), it experienced three rounds of rapid decline within half a year, with an extremely fast pace of decline.

1. From June 13, 2015 to July 8, the Shanghai Composite Index quickly dropped from 5166.35 points to 3507.19 points, with a cumulative decline of 32.11%, lasting about three weeks.

Subsequently, there was a slight rebound due to policy stimuli, lasting about a month.

2. From August 17 to August 26, 2015, the Shanghai Composite Index once again rapidly declined from 3993.67 points to 2927.29 points, with a cumulative decline of 26.70%, lasting only about a week.

Subsequently, there was a slight rebound under the influence of policy stimuli, lasting about four months.

3. From December 22, 2015 to January 28, 2016, the Shanghai Composite Index once again rapidly declined from 3651.77 points to 2655.66 points, with a cumulative decline of 27.28%, lasting about a month.

(2) A "bull market" without fundamental and financial support is bound to be short-lived.

Looking back, the bull market in 2014-2015 was more driven by emotions, the result of various bullish policies stacking up. However, after the stock market continued to rise for a year, the fundamentals did not improve further, and there was no strong financial policy in place, causing the 'reform bull' supported 'leverage bull' to come to a halt after June 2015.

1. Taking the manufacturing industry PMI as an example, it continuously increased from March 2014 to July 2014, from 50.2 to 51.7; however, it started to decline continuously from August 2014 to January 2015, dropping to 49.8, then saw a rebound from February to May 2015, but this trend did not continue.

This indicates that during the bull market of 2014-2015, the economic fundamentals did not truly improve continuously.

2. Taking the nominal economic growth rate (quarterly) as an example, in the fourth quarter of 2013, China's nominal economic growth rate for the quarter was 10.51%, 9.04% in the second quarter of 2014, and then dropped to 8.71%, 7.78%, and 7.37% in the third and fourth quarters of 2014 and the first quarter of 2015 respectively, showing that the economic fundamentals continued to weaken under policy efforts.

3. What's more bizarre is that during that epic 'bull market' rally, monetary policy was basically acting alone, with an overall absence of financial policies. With the economy lacking good performance, it was hardly supported by the economic fundamentals.

(IV) The impact in 2015 was profound: a fundamental change in the attitude of decision-makers towards capital began from this point onwards

(I) Strictly speaking, decision-makers were not prepared for the start and end of the 'bull market' rally in 2014-2015. Their attitudes at different stages experienced defaults, support, and concerns. For example, before November 2014, the start of the 'year-end market rally' was relatively slow, and the stock market's gains were relatively stable; then following the sharp consecutive easing of monetary policy in November 2014, the market began to show more rapid and aggressive performance. Market sentiment was quickly ignited after November 2014, at this time the decision-makers defaulted to the market performance and continued to support it at the policy level.

(2) In June 2015, after the market closed, monetary policy still relied on significantly easing monetary policy after the market closed to inject liquidity into the market to boost market confidence, while beginning to shift towards reducing the leverage crisis in the capital market through strict regulation.

In fact, until 2016-2017, the authorities began to disclose relevant information during some declines (such as Xu Xiang, known as the 'private equity king' and Li Jianlin, known as the 'wealthy man of the South'), defining this as 'a financial crime wave during this rapid rise and fall in the stock market.'

(3) In hindsight, the impact of the decline in 2014-2015 on the market was extremely profound, leading to a fundamental change in the decision-makers' understanding of the dark side of China's capital market and financial system, basically halting the series of reform measures determined at the Third Plenary Session of the 18th CPC Central Committee. The strict regulatory wave launched in October 2015 was officially kicked off.

V. Conclusion

In hindsight, the impact of the bull market in 2014-2015 on the market and decision-makers was extremely profound, causing a fundamental shift in the decision-makers' attitude towards capital. In that bull market, the characteristic of rapid rise and fall was prominent, intertwined with highly complex financial crimes, and the economic fundamentals and fiscal policies did not provide sustained support. Therefore, that bull market came quickly and ended even faster.

It can basically be considered that 2015 has not yet experienced a relatively complete bull market cycle. However, I still remember that during that bull market, the main topic discussed by classmates, teachers in daily study, life, and cafeteria classrooms was the stock market. At that time, if you shouted that a 0.01 million-point increase was not a dream, no one would think you were crazy, let alone feel awkward. It can be said that before the stock market crash, no one thought the bull market had ended. On the contrary, the consensus in the market at that time was 'every adjustment is an opportunity to get on board.' At that time, compared to earning a Ph.D., making money in the stock market was much easier, so some people not only did not make money in the end but also did not graduate.

Article Source: Ren Zhuangzhuo Original Title: 'Reviewing the Epic Bull Market of 2014-2015'

Editor/ping