"Currently, it is definitely safer to view this purely as a rebound rally," Old Wu said. "Any higher expectations will depend on subsequent market consensus."
Until the market trend actually plays out, no one can accurately forecast it.
Looking back at historical price movements,
every single market reversal begins with a rebound.
Therefore, Old Wu couldn't definitively say that an expectation of a market reversal wouldn't emerge here.
After all, following the devastating bear market of 2008, the market went on in 2009—at a time when everyone generally believed there was no chance of a reversal—to forge a small bull market that doubled the index.
The current market situation seemed somewhat similar to that period.
However, after market expansion, the incremental capital required for this trend transition from a rebound to a reversal would undoubtedly multiply many times over.
"Even if the overall market trajectory fails to form a reversal..." Xu Qiao paused before continuing, "as long as market bullish sentiment and wealth-effect pick up, there shouldn't be any major risk issues before the Shanghai Composite hits 3,000 points, right? Furthermore... under the policy support of the state's 'supply-side structural reform' and the 'New Era Silk Road' strategies, coupled with the recovery of the nationwide real estate market and the influence of the institutional core positions laid out by Huayi Capital under Brother Su's command, I feel that even if overall market expectations aren't strong, it should still be able to chart an independent rally just like the previous 'consumption' and 'pharmaceutical' main themes, shouldn't it?"
"I feel like the logic behind the 'Mega-Infrastructure' main theme is still quite noticeably different from the 'pharmaceutical' and 'consumption' main themes, no?" Old Zhang said. "What's more, the current 'pharmaceutical' and 'consumption' sectors are already domains where domestic mutual fund institutions have concentrated their huddled holdings; their price trajectories have already detached somewhat from fundamentals.
Conversely, look at real estate, steel, coal, non-ferrous metals, architectural decoration, and building materials—these 'Mega-Infrastructure' main-theme sectors.
Their internal chip structures remain a chaotic mess.
Trapped positions are heavy, the chip structure is dispersed, and the vast majority of chips are basically concentrated in the hands of retail investors. Mutual fund institutions hold very few positions in these domains.
Even for the institution Huayi Capital managed by Brother Su, they didn't hold many positions in this 'Mega-Infrastructure' main theme previously. It was only after seeing the gradual global real estate market recovery that they trimmed some of their positions in the 'new energy industrial chain' main theme and rotated into the 'Mega-Infrastructure' main theme.
Even so... based on current conditions, the institution Huayi Capital managed by Brother Su, in terms of its positions and expected position weighting in the direction of the 'Mega-Infrastructure' main theme, probably still doesn't exceed its position weighting in the 'broad consumption' domain.
Generally speaking, for this 'Mega-Infrastructure' main theme, to what height can its rally reach? Can it, like 'pharmaceuticals' and 'consumption', become a core main theme where a new group of dominant institutions huddles up to build positions and speculate? That remains uncertain."
"I feel it can," Xu Qiao asserted firmly. "Precisely because throughout the entire bull-bear transition and the prolonged preceding downtrend within the entire 'Mega-Infrastructure' main-theme domain, the numerous mutual fund institutions that held positions in the 'Mega-Infrastructure' main theme during the previous bull market distributed almost all their chips into the hands of retail investors—resulting in a chaotic chip structure where it's basically all retail holdings—that we can look more favorably upon the rally development of this 'Mega-Infrastructure' main theme.
After all, whether people agree with the logic of the 'Mega-Infrastructure' main theme or not, the recovery and reversal of the global real estate market is a fact, right? The general rise and rebound of housing prices across major global core cities, and even now across major tier-2 and tier-3 cities, accompanied by phenomena hinting at the brewing of a property market bull run—that's also a fact, right?
And the strategic plan proposed by the state regarding 'supply-side structural reforms', alongside the continuously advancing macroeconomic strategic planning of the 'New Era Silk Road', which provides long-term positive catalysts for market demand in infrastructure construction and the entire 'Mega-Infrastructure' main theme—that's a fact too, right?
In other words... the underlying logic of this core main theme of 'Mega-Infrastructure' is undergoing continuous change, and the fundamentals of the entire industry are gradually improving. That is entirely predictable, isn't it?
Since all these factors are favorable to the 'Mega-Infrastructure' main theme, with future expectations growing increasingly bright and a major performance explosion anticipated for industry-leading enterprises, how could there be no capital coming in to play this main theme?
And how could those numerous mutual fund institutions in the market—which have minimum position requirements and cannot fully exit the market—fail to rotate their positions into this core main theme domain?
Furthermore, in this main theme domain, there are basically no other dominant institutions lurking.
That means across the entire 'Mega-Infrastructure' main theme, there are no other major capital institutions suppressing the market order book.
You must remember that retail investor groups in the market are the least unified, and their favorite operation is chasing rising prices and killing off falling ones.
A chip structure entirely aggregated by retail investor groups provides newly entering dominant institutions with a golden opportunity to easily collect chips and control the order book.
Moreover, across the entire market... the 'Mega-Infrastructure' main-theme sectors represent one of the few main-theme domains capable of accommodating massive capital activity with relatively high liquidity.
I believe that under so many positive factors, in front of such obvious speculative and investment opportunities, and given that dominant institutions like Huayi Capital managed by Brother Su have already sparked the wealth-effect and bullish sentiment, other dominant institution groups both inside and outside the market cannot possibly fail to follow suit, nor can they fail to huddle up and speculate in this main theme domain."
"What Xiao Xu says does indeed make a certain amount of sense," Old Wu pondered carefully before replying. "Looking at the price action over the past few trading sessions, you can clearly perceive major capital groups both inside and outside the market continuously flowing into this core main theme of 'Mega-Infrastructure' and steadily building positions."
"I don't know if you guys have noticed..." Hearing the dispute between Xu Qiao and Old Zhang, Brother Chen smiled and suddenly reminded them, "Over these past few months, the market's trading style has continuously shifted toward high-performing large-cap stocks. The previous speculative models—or rather, the investment models that many capitals relied on for survival—are gradually losing their effectiveness and being eliminated by the market."
"That is so true," Old Zhang replied. "Over the past quarter or so of market movement, the performance of the A50 Index and the CSI 300 Index has consistently outperformed the Shenzhen Component, ChiNext Index, and the Wind Small Cap 500 Index. Among them, the outperformance of the A50 Index versus the ChiNext Index has been the most pronounced."
"Judging from the movement of the A50 Index, the market has clearly completed its bottoming phase and entered a stage of overall rebound and repair," Old Wu chimed in at this point.
"Meanwhile, looking at the ChiNext Index's trajectory, it is clearly still stuck in a continuous, grinding downward trend while searching for a bottom, entirely devoid of any bottom-pattern characteristics. And the component stocks related to the ChiNext Index have performed even worse, especially stocks in the 'mobile internet' and 'film & media' sectors. After generally plunging 60% from their highs, they still show zero signs of defensive price action."
"Stocks in those two main-theme sectors of 'mobile internet' and 'film & media' were basically the core main-theme domains heavily huddled into and hyped by various capital factions during the 2014-2015 bull market," Xu Qiao said. "After undergoing frenzied hype during the bull market, both valuations and expectations for these related sectors and stocks were severely overdrawn. Today, they are weaker than the broader market and plunging harder than heavyweight stocks—that should be understandable, right?"
"It's not just those two main-theme sectors of 'mobile internet' and 'film & media'," Old Wu noted. "Just look at the market's growth concept sectors, especially small-and-mid-cap concept stocks with market caps below 10 billion yuan. Even those small-cap stocks that didn't rise very high during the 2014-2015 bull market are performing weaker than the market's performance-driven heavyweight stocks, exhibiting an endless downward spiral."
"Could it be that over the past few years, the market's investment logic centered around 'growth' expectations has been thoroughly shaken?" Old Zhang asked doubtfully. "Otherwise, the performance gap between growth stocks and performance-backed heavyweight stocks wouldn't be this wide."
"It can only be said that the investment preferences of the market's dominant capital are shifting rapidly," Brother Chen said. "If this market style continues, those institutional capital factions that previously played 'growth' expectations—if they fail to promptly transform their investment mindset and models—will likely be gradually eliminated by the market."
"It seems there really are no eternal scriptures in the financial market," Old Zhang sighed. "Trading models that used to generate profits have now become sources of losses."
Old Wu replied, "That's what you call the source of both profit and loss!"
"No wonder Huayi Capital, managed by Brother Su, shifted its primary fund product 'Huayi Expedition No. 1' completely toward performance-driven, low-valuation blue-chip heavyweight stocks and high-performing blue-chip stocks in its position allocation," Xu Qiao exclaimed with sudden realization. "Could it be that Brother Su sensed this shift in market investment style right after the market crash at the beginning of the year, altering his investment mindset and style well in advance?"
"Could he really have?" Old Zhang was startled. "Market performance back then showed no obvious difference between heavyweight stocks and conceptual growth stocks; the entire market was in an indiscriminate broad decline. How... how could anyone possibly spot back then that the market's investment style would switch from the previous growth style to a heavyweight blue-chip style?"
"It's entirely possible," Old Wu said. "Brother Su's acute sense of smell regarding changes in market main themes and investment styles is truly peerless."
"Damn, if that's really the case..." Old Zhang marveled, "then Brother Su is way too awesome."
Xu Qiao remarked, "No wonder I always felt Brother Su's investment style was so strange before. Turns out the fundamental reason for his style shift lies right here!"
"Actually, the shift in market investment style—the gradual transition of dominant major capital preferences from growth concept stocks to heavyweight blue-chips and high-performing blue-chips—is also understandable and traceable," Brother Chen explained. "Analyzing from a market trading perspective, it's quite clear: growth concept stocks offer higher elasticity, whereas heavyweight blue-chips and high-performing blue-chips offer better liquidity, stability, and predictable certainty.
When the market's overall risk appetite is high—meaning the market is in a phase where trading volume climbs step by step, bullish sentiment is soaring, and endless incremental capital from the sidelines is entering to absorb orders—
major capital will naturally choose to deploy and operate in growth concept stocks offering higher elasticity, while opportunistically abandoning heavyweight blue-chips and high-performing blue-chips.
Because only by doing so can they extract excess returns from the high elasticity of growth concept stocks.
However, when the market transitions from a high-risk-appetite bull market into a low-risk-appetite bear market, when market liquidity drops drastically, sideline funds flow out, and external capital lacks the motivation to enter and absorb orders—growth concept stocks become highly unsuitable for long-term holding by major capital or for investment as core positions, due to uncertainties in future expectations and order-book liquidity issues.
Instead, the market's low-valuation heavyweight blue-chips and high-performing blue-chips become the top choice for dominant major capital within the market, driven by reasons such as relative certainty in future expectations, performance stability, and high order-book liquidity.
At this juncture... what dominant capital pursues is no longer absolute excess returns, but stability, certainty, and various factors and conditions on how to survive a bear market and keep their funds from being liquidated.
Therefore, the current phenomenon of shifting market investment styles—where the Shanghai market is strong while Shenzhen is weak, and the ChiNext Index performs far worse than the A50 Index—is completely rational and logical.
Furthermore, I predict that for a potentially long time in the future, the market will maintain this investment style and model."
"Does Brother Chen mean that the previous short-term thinking logic of speculating on 'growth concept stocks' has now basically become ineffective?" Xu Qiao asked. "Do we also need to transform our mindset and shift our trading and investment style moving forward?"
Brother Chen replied, "I wouldn't say the previous speculative models and trading logic are completely ineffective, but their effectiveness is definitely discounted heavily, and maintaining stable profits through them will be quite difficult, in my opinion."
"To be honest, the market has indeed been hard to trade in the short term lately," Old Zhang said. "High-position leading stocks face 'nuclear button' sell-offs out of nowhere; low-position first-board stocks experience exploding limit-ups left and right. Even if a low-position limit-up doesn't explode intraday, it carries virtually no premium the next day.
Whether you play high or play low, profits are hard to come by. It's just that... over these past few days, as the institution Huayi Capital managed by Brother Su dragged out the core main theme of 'Mega-Infrastructure', lifting overall market bullish sentiment and expanding volume considerably, short-term trading has become slightly easier to handle."
"The previous limit-up chasing model really isn't working very well anymore," Xu Qiao felt this acutely in his heart.
Old Wu said, "When more and more people imitate a particular trading model, a consensus expectation easily forms, and naturally it becomes hard to make money. Short-term trading... to put it bluntly, is chip gambling. And chip gambling is a mutual zero-sum wager. Since it's a mutual zero-sum wager, it's naturally very hard for the majority of people to make money."
"So, this model will need to evolve before it can adapt to market changes in the future," Old Zhang said. "Before finding a short-term model that adapts to the current market, shifting your investment mindset and embracing heavyweight blue-chips and high-performing blue-chips—which dominant capital institutions are beginning to huddle around—is indeed a solid choice."
(End of Chapter)