Resilient Investors Power Steady Bull Market

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In recent discussions surrounding the A-share market, skepticism about the emergence of a "slow bull" market persistsTo many, the prospect seems unlikely; however, the historical trajectories of mature global stock markets tell a different storyAn examination reveals a gradual upward curve, rife with fluctuations yet ultimately indicative of longer-term growthThe cyclical nature of “bull and bear markets”, when viewed through the lens of history, can be perceived merely as interludes within the broader narrative of this “slow bull” phenomenon.

At its core, investment is inherently an art of time managementTake the example of bond investing, wherein one essentially exchanges a set period of holding for a stream of interest incomeStock market investments operate on a similar premise, where the acquisition of shares signals a purchase of the company’s projected future profitsThe price of a stock often reflects the discounted value of those anticipated earnings, establishing a connection between one's investment and the entity's future earningsTherefore, investing in stocks encapsulates the essence of acquiring a company’s potential—all using the time dimension as a critical factor.

How far into the future one is able to project these earnings rests on individual judgment and risk toleranceFor instance, consider the fluctuations observed in technology stocks compared to those of more traditional industriesThe inherent volatility in tech stocks arises primarily from the unpredictable nature of their future earnings, which are affected by a myriad of uncertain factorsOn the contrary, traditional industries often display relatively stable profits, rendering future revenues much more predictableAs a result, tech stocks frequently command higher price-to-earnings ratios, reflecting the investor's acknowledgment of extended timelines for profiting from their investmentsConversely, established industries, with their regulated growth predictions, tend to attract conservative investors who are risk-averse.

Interestingly, this dynamic fosters a specific understanding of bull markets

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The occurrence of a "1-year tripling" of stock prices seems improbable due to the fundamental principle that corporate profit growth cannot realistically achieve such high multipliers within a single yearStocks that surge in this manner often experience inflated prices and are prone to dramatic corrections, risking a return to their original values or even falling lower.

On the other hand, a “10-year tripling” of stock values tells a vastly different storyA decade provides sufficient time for a company's innovations today to evolve into tomorrow's bestsellers, transforming projections of profits into tangible financial outcomesWith profit growth comes the possibility of an increase in share prices, often without proportionately escalating price-to-earnings ratiosThus, a genuine bull market is better characterized as a "slow bull," where stock prices ascend in tandem with corporate performance.

So, how can we foster conditions in China's A-share market that encourage the development of a "slow bull" market? The need for meticulous governance cannot be overstatedIt begins with stringent laws and regulations, which will empower market mechanisms to attract earnest companies willing to share profits flexibly with smaller investorsSimultaneously, firms driven primarily by a thirst for quick cash should be systematically removed from the market.

One potential approach could involve establishing a “Platform for Major Shareholders to Transfer Shares” across Chinese exchangesThis platform would allow major stakeholders to trade their shares in a more regulated environmentFurther, any listings on this platform can be distinctly marked within the transactional feed of the exchangeSuch delineation not only encourages negotiations between large shareholders and prominent investors but also helps maintain the interests of smaller investors by safeguarding them against manipulative price actions intended for share cash-outs.

The advantages of this model are twofold