For stock investors, research reports from Gold Kirin analysts offer authority, professionalism, timeliness, and comprehensiveness to help uncover potential thematic opportunities. On November 4, the market staged a powerful rally, with the Shanghai Composite Index closing up 2.16%, the Shenzhen Component Index rising 4.22%, the ChiNext Index surging 6.4%, and the STAR 50 jumping 9.92%. More than 4,600 individual stocks advanced across the market. In terms of sector performance, semiconductors, communications equipment, and precious metals led the gains. (Data source: Wind; not investment advice, past performance does not guarantee future results, markets carry risk, invest with caution)
What happened?
Wednesday's strong rebound in the A-share market was the result of both domestic and international positive catalysts. Externally, the Democratic Party achieved an overwhelming victory in the U.S. midterm elections, regaining control of both chambers of Congress. The previous market concern over "uncertain congressional composition and fluctuating policy expectations" was resolved, and global risk appetite recovered collectively. Domestically, the People's Bank of China lowered the interest rate on relending for stock buybacks and increased holdings by 0.25 percentage points to 1% starting today, supporting banks in providing buyback and increased-holding funds to listed companies. This tangible policy support significantly boosted market confidence. Additionally, the earlier pronounced oversold conditions in A-shares had accumulated momentum for this rebound. With domestic and external factors overlapping, capital quickly flowed back into growth sectors that may have been unfairly sold off, producing a strong recovery rally.
Reviewing multiple rounds of major market corrections in history
Before Wednesday's rebound, the market had undergone deep corrections since July. The Shanghai Composite Index fell from its yearly high of 5,258.86 points, dropping 6.40% in July alone and another 6.33% in October. The Shenzhen Component Index fell 16.21% in July and 15.94% in October. The ChiNext Index suffered back-to-back monthly declines of around 23%, while the STAR Composite Index dropped 27.79% in July alone, and the STAR 50 fell another 24.13% in October. Divergence also appeared across sectors, with communications and electronics leading the declines. The AI industry chain and computing power sectors, which had shone brightly in the first half of the year, experienced a roller-coaster ride. (Data source: Wind; not investment advice, past performance does not guarantee future results, markets carry risk, invest with caution)
Spreading out the Shanghai Composite Index's trajectory over the past twenty-five years, we can identify roughly six corrections where the market decline was relatively large and the duration relatively long. Their causes differed, but their processes shared many similarities.
Historical corrections of the Shanghai Composite Index
1. June 14, 2001 to June 6, 2005: The index fell from a high of 2,245.44 points to 998.23 points on June 6, 2005, a maximum drawdown of nearly 56%, lasting nearly four years. After the dot-com bubble burst in 2000, A-shares entered a prolonged correction period. Although there were several rebounds, each was quickly swallowed by new declines. (Data source: Wind, statistical period: June 14, 2001 to June 6, 2005)
2. October 16, 2007 to October 28, 2008: The Shanghai Composite Index fell from a high of 6,124.04 points all the way to 1,664.93 points, a decline of nearly 73%, lasting about one year. The 2008 global financial crisis erupted, and the shockwaves of the U.S. subprime mortgage crisis swept the globe. A-shares were not spared, and the 6,124-point high has yet to be surpassed. (Data source: Wind, statistical period: October 16, 2007 to October 28, 2008)
3. August 4, 2009 to June 25, 2013: The Shanghai Composite Index fell from 3,478.01 points to 1,849.65 points, a decline of nearly 47%, lasting nearly four years. After the four-trillion-yuan stimulus plan, A-shares staged a strong rebound, but subsequently, factors such as massive IPO expansion and slowing economic growth combined to push the market into another prolonged correction. (Data source: Wind, statistical period: August 4, 2009 to June 25, 2013)
4. June 12, 2015 to January 27, 2016: The Shanghai Composite Index fell from 5,178.19 points to 2,638.3 points, a decline of about 49%, lasting about half a year. In the first half of 2015, leveraged capital drove A-shares to rise rapidly, with off-market margin financing once exceeding two trillion yuan. After deleveraging began in June, the market took a sharp turn, and scenes of thousands of stocks hitting the daily limit-down occurred repeatedly. (Data source: Wind, statistical period: June 12, 2015 to January 27, 2016)
5. January 29, 2018 to January 4, 2019: The Shanghai Composite Index fell from 3,587.03 points to 2,440.91 points, a decline of about 32%, lasting nearly one year. The core pressure of this correction came from the U.S.-China trade war. In March 2018, the United States launched trade sanctions against China, and the shadow of tariff increases loomed over the entire year. (Data source: Wind, statistical period: January 29, 2018 to January 4, 2019)
6. December 14, 2021 to February 5, 2024: The Shanghai Composite Index fell from 3,587.03 points to 2,440.91 points, a decline of about 32%, lasting nearly one year. This correction was compounded by multiple factors: post-pandemic economic recovery falling short of expectations, valuation digestion in previously popular sectors such as new energy, and deep adjustments in the real estate industry. (Data source: Wind, statistical period: December 14, 2021 to February 5, 2024)
What happened if you held on?
Volatility is the norm in markets; where there are gains, there are declines. The key is to maintain a good mindset when facing market corrections. Looking back at several difficult periods in A-share history, you might ask: if you had chosen to hold on during past market corrections, what would have happened? Let the data speak. Using the Partial-Equity Hybrid Fund Index (885001) as the backtesting target, let's see how it performed after each correction.
— June 2005, holding to present, cumulative gain exceeding 1,000%;
— October 2008, holding to present, cumulative gain exceeding 350%;
— June 2013, holding to present, cumulative gain exceeding 190%;
— January 2016, holding to present, cumulative gain exceeding 90%;
— January 2019, holding to present, cumulative gain exceeding 100%.
(Data source: Wind; past performance does not guarantee future results, markets carry risk, invest with caution)
These numbers tell us a simple yet profound truth: when the market is extremely pessimistic, it often corresponds to a relatively good buying point. Investors who held on through panic may later reap ideal returns.
Performance of the Partial-Equity Hybrid Fund Index after past market corrections
Additionally, historical data shows that after each prolonged market correction, the Partial-Equity Hybrid Fund Index, for example, subsequently delivered solid returns, and the longer the holding period, the greater the likelihood of higher returns.
Returns of holding the Partial-Equity Hybrid Fund Index after past market corrections
It should be noted that the intraday afternoon rally, accompanied by recovering sentiment and expanded volume, is closer to a valuation repair driven by "negative factors landing plus oversold recovery." Whether it can evolve into a trending rally still depends on whether incremental policies and trading volume can be sustained. Moreover, even in a rising market, significant fluctuations and drawdowns may occur along the way. The market is full of changes. For most investors, it is advisable not to hold excessively heavy positions and to diversify allocations as much as possible.
Munger once said: "The stock market is a voting machine in the short run and a weighing machine in the long run." Short-term price fluctuations are influenced by sentiment, capital flows, news, and many other factors, but in the long run, stock prices will ultimately return to the intrinsic value of listed companies. This is precisely the core logic of value investing—using time to exchange for space, and patience to exchange for returns.
Broadening our time horizon, we see that China's economy has continued to develop and advance over the past decades, the intrinsic value of high-quality listed companies has been continuously accumulating, and the value center of the A-share market has been steadily rising over the long term. But investing is such a journey of cultivation. It does not test who is smarter; it only tests who is more patient. Those who still believe in the future and persist in positioning themselves during difficult market times often ultimately achieve ideal returns.
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