China Securities Co., Ltd. released a research report stating that compared to the liquidity-driven bull market from May 2014 to June 2015, the current bull market since September 2024 shares similarities in market sentiment but also exhibits notable differences. While trading volume and turnover rates in the current rally resemble peak levels of the previous cycle, key indicators in liquidity, valuation, and risk premium remain subdued. This divergence highlights the structural nature of the ongoing rally, which would require stronger momentum across these three dimensions to evolve into a full-fledged bull market.
**Key Insights:** 1. **Constructing a Comprehensive Sentiment Indicator** Market sentiment is assessed across five dimensions: trading activity ("volume"), price trends ("price"), liquidity ("funds"), valuation, and risk premium. Metrics include: - **Volume**: Trading value relative to market cap and turnover rates. - **Price**: Proportion of stocks closing higher daily and over three months. - **Funds**: Net active buying as a percentage of turnover, mutual fund equity positions, margin trading ratios, and margin balances relative to A-share market cap. - **Valuation**: Dynamic P/E ratios for the Wind All-A Index, average P/E across 31 Shenwan industries, and P/B ratios. - **Risk Premium**: Spread between the Wind All-A implied yield and 10-year government bond yields. A composite sentiment index is derived by averaging the historical percentile rankings of these 12 indicators.
2. **Historical Performance of the Sentiment Index** Backtesting shows the index closely tracks and often leads major market turns. For instance: - In the 2014–2015 bull run, the index peaked on April 22, 2015, ahead of the Wind All-A Index’s June 12 high. - In the current cycle, the sentiment index topped on September 25, 2025, preceding the October 29 interim peak.
3. **Comparisons to Past Bull Markets** Two notable bull markets occurred amid weak macroeconomic growth: 2014–2015 and the current cycle since September 2024. Both saw rapid equity gains despite subdued nominal GDP growth and negative PPI trends. While often attributed to liquidity, equities typically price in turning points ahead of actual recovery, suggesting bull markets emerge when pessimistic expectations reverse—even if hard data lags.
4. **Current Sentiment Indicators** - **Composite Index**: The 2014–2015 cycle hit a 95.5% historical percentile peak, whereas the current cycle maxed at 78.7%. - **Volume**: Trading value and turnover rates now match prior cycle highs (99%+ percentiles). - **Funds**: Active buying, margin trading, and fund positioning remain below 2015 highs. - **Valuation & Risk Premium**: P/E, P/B, and risk premium metrics are notably weaker, reflecting sectoral divergences (e.g., tech outperformance vs. undervalued domestic demand sectors).
5. **Structural Nuances of the Current Rally** - **Volume Strength**: Driven by capital rotation from bonds, deposits, and real estate into equities. - **Turnover Bias**: High churn in low-cap, high-turnover stocks amid rapid macro shifts. - **Funds Weakness**: Traditional metrics underrepresent inflows from insurers and private wealth channels. - **Valuation Gaps**: Tech sector valuations near record highs contrast with depressed cyclical and consumer valuations, awaiting domestic demand recovery.
6. **Outlook for a Full Bull Market** Tech sector sentiment (e.g., electronics, communications, IT) has far exceeded broad market levels in trading volume, leverage, and valuation. However, broader market participation—requiring policy support or economic data improvements—is needed to lift fund flows, leverage, and valuations in lagging sectors like cyclicals and consumer staples. Until then, the rally remains structurally constrained.
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