Nearly one year has passed since "9.24": Index cumulative gains exceed 40%, with growth and small-cap stocks outperforming

Since last year's "924", the Shanghai Composite Index has experienced a process of bottoming out, volatile fluctuations, and subsequent recovery. Over the past year, A-shares have delivered strong performance, with the Shanghai Composite Index recently hitting a near-decade high. The cumulative gain from the market low in September last year to present stands at 44.6%, representing an outstanding performance compared to other markets and assets. A-share daily trading volume has gradually increased from less than 500 billion yuan in September last year to around 3 trillion yuan recently, reflecting a significant shift in investor risk appetite over the year. In terms of style, although different sectors led gains in different phases, technology growth stocks driven by industry trends have generally performed well, with the STAR 50 and ChiNext indices posting cumulative gains of 95.9% and 92.9% respectively. Sector-wise, TMT, non-ferrous metals, and high-end manufacturing have led the market over the past year, while real estate chains, broad consumption, and some traditional cyclical industries have shown relatively lackluster performance.

Chronologically, this rally can be roughly divided into the following phases:

**1) Initial Rally Phase (Late September to Early October 2024):** Starting in mid-to-late September 2024, China's growth-stabilizing policies were significantly enhanced, with a series of policy signals released consecutively. The policy package launched on September 24 (including reserve requirement ratio and interest rate cuts, reductions in existing mortgage rates, and creation of stock market support tools) boosted market confidence. On September 26, the Politburo meeting was unusually convened in September to deploy economic work, proposing to "face difficulties squarely." Driven by optimistic sentiment, the index surged in early October, hitting a new high over the past two and a half years, with A-share daily trading volume rapidly expanding to 3.5 trillion yuan. During this phase, the Shanghai Composite Index rose 27% in six trading days. Growth-oriented ChiNext and STAR 50 showed greater elasticity, rising 66.6% and 59.2% respectively. Small-cap styles like CSI 1000/CSI 2000 outperformed the large-cap CSI 300 index.

The main trading theme during this phase reflected policy dividend-driven valuation repair. In terms of sector performance, procyclical sectors and financials that directly benefited from macro policies led the initial rally, with traditional cyclical industries like liquor, steel, coal, and chemicals showing periodic strength. Soon after, new energy and technology growth sectors gained momentum. This phase reflected expectations of policy intensification, with beauty care, computers, non-bank financials, electronics, and power equipment posting significant gains. Sub-sectors including batteries, semiconductors, software development, medical services, and securities performed well.

**2) Volatility Phase (October 2024 to March 2025):** After surging in October last year, the market pulled back and entered a prolonged consolidation phase, with the Shanghai Composite Index fluctuating within a range of about 200 points, showing significantly narrowed volatility. During this period, domestic policies expanded "two new" initiatives, convened private economy symposiums, launched consumption stimulus action plans, and regulators actively promoted long-term capital market entry. In terms of events, DeepSeek after Spring Festival sparked attention to technological innovation, while overseas Trump's presidency and various US policies gradually showed impact, with technology narratives and geopolitical narratives leading to Chinese asset revaluation. Under strong performance of technology growth sectors, A-shares exhibited structural market conditions.

Market trading logic shifted from macro to industry trends during this period. Dividend and micro-cap stocks performed well initially, with the Wind Micro-Cap Index rising 6.5%, ranking among the top broad-based indices. Dividend sectors benefiting from loose policy environment, stable dividend growth, and ample cash flows also performed well, with banks showing relative outperformance. Around February this year, AI technological breakthroughs and application implementations became market focus, with AI-related technology hardware and internet leaders performing well. Related high-growth tracks like robotics, semiconductors, software, and cloud computing showed rotation, with technology growth sectors becoming the main trading theme as logic shifted from policy focus to industry trends.

**3) External Risk-Driven Phase Correction (March to Early April 2025):** Since late March, with rising external uncertainties and increased earnings focus, market sentiment cooled marginally, with previously leading technology sectors pulling back. On April 2, the US announced reciprocal tariffs, causing significant index adjustment in early April. However, with timely intervention by "national team" entities like Central Huijin and a package of financial policies including central bank reserve requirement and interest rate cuts, the index quickly stabilized.

External risk shocks brought short-term adjustment, with market style switching again to policy-beneficiary areas. Domestic demand-related sectors like real estate, food and beverages, agriculture, forestry, animal husbandry and fishery, and commercial retail showed periodic performance during this period.

**4) Recovery and Rise Phase (Mid-April 2025 to Present):** With improving macro environment and market sentiment, A-shares entered a steady upward phase. During this phase, China-US tariff disputes moved from escalation to de-escalation, global investor confidence in the US dollar system wavered, and the dollar continued its weakness. Domestically, the central bank further cut interest and reserve requirement ratios in May, multiple state-owned banks lowered deposit rates, and 10-year government bond yields once fell below 1.6%. Under ample liquidity and "asset shortage" backdrop, incremental capital inflows provided funding support for A-shares: margin trading balance broke through 2 trillion yuan in August, hitting a decade high; new account openings increased 32% year-on-year in the first half; signs of household deposit migration emerged.

Growth and non-bank sectors rotated in resonance with other high-growth industries. With continued trading volume expansion and rising risk appetite, high-growth industries maintained high attention and relative performance. The pharmaceutical and biotech sector benefited from R&D positives and policy catalysts, with some companies accelerating overseas business and innovative drug sectors showing outstanding performance. AI maintained high growth from infrastructure to application segments, with computing power, cloud computing, and humanoid robots performing excellently. Under sentiment reversal, non-bank sectors benefiting from capital market stabilization performed well.

Regarding driving factors, CICC strategy team mentioned in their previous report "Debate on Bull Market Causes - From the Perspective of International Monetary System Changes" that when decomposing A-share performance, the main contribution to A-share gains comes from declining risk premiums, while capital inflows and wealth effects are merely results. More importantly, the underlying factors initially creating wealth effects and belief in their sustainability. They analyzed mainstream market explanations for this rally including the national put option theory, domestic economic policy adjustment theory, low interest rate theory, household deposit migration theory, dollar depreciation theory, and innovation narrative reversal theory. The first four hypotheses generally have logical issues like self-contradiction or cart-before-horse reasoning, or cannot serve as driving forces. The last two hypotheses have relatively stronger explanatory power. At a deeper level, combining the latter two hypotheses actually reflects global monetary order reconstruction, which may provide more comprehensive explanatory power for this bull market and represents the core driving force behind the rally.

**Looking ahead, while short-term volatility risks cannot be ruled out, the medium-term upward trend has not ended**

CICC strategy team mentioned in "Debate on Bull Market Causes - From the Perspective of International Monetary System Changes" that the key to judging whether this rally has ended lies in whether the underlying logic has been shaken. If the underlying logic remains unchanged, even pullbacks present buying opportunities. Currently, global monetary order reconstruction remains in early stages, China's innovation momentum and industrial chain advantages continue strengthening, and A-share and H-share valuations still show discounts. Comprehensively, Chinese asset revaluation still has room. Short-term funding benefits from household "deposit migration" and sentiment repair, but vigilance is needed against non-linear volatility caused by "animal spirits." Subsequently, the key is whether fiscal-monetary and structural policies can offset low inflation and weakening credit, repair corporate and household balance sheets, stabilize profits and employment, thereby strengthening optimistic expectations and driving continued capital inflows.

**Allocation recommendations:** 1) With improving liquidity expectations, STAR and thematic sectors have medium-to-long-term comparative advantages in performance. Focus on industries with relatively solid industrial logic, such as communications equipment, semiconductors, electronic hardware, solid-state batteries, innovative drugs, defense and military, and robotics. 2) China's manufacturing advantages are prominent. Focus on white goods, construction machinery, and power grid equipment that show trade growth with non-US economies and have established overseas capacity. 3) Capital market sentiment recovery boosts financial sector performance. Focus on insurance and securities. 4) "Anti-involution" guides industry supply contraction, with policy efforts catalyzing demand stabilization expectations. Focus on sectors like solar. 5) Dividend sectors may show differentiation. Based on quality cash flows, volatility, and dividend certainty, allocate to telecommunications and banking sectors.