Resilient Investors Power Steady Bull Market

In recent discussions surrounding the A-share market, skepticism about the emergence of a "slow bull" market persists. To many, the prospect seems unlikely; however, the historical trajectories of mature global stock markets tell a different story. An examination reveals a gradual upward curve, rife with fluctuations yet ultimately indicative of longer-term growth. The 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 management. Take the example of bond investing, wherein one essentially exchanges a set period of holding for a stream of interest income. Stock market investments operate on a similar premise, where the acquisition of shares signals a purchase of the company’s projected future profits. The 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 earnings. Therefore, 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 tolerance. For instance, consider the fluctuations observed in technology stocks compared to those of more traditional industries. The inherent volatility in tech stocks arises primarily from the unpredictable nature of their future earnings, which are affected by a myriad of uncertain factors. On the contrary, traditional industries often display relatively stable profits, rendering future revenues much more predictable. As a result, tech stocks frequently command higher price-to-earnings ratios, reflecting the investor's acknowledgment of extended timelines for profiting from their investments. Conversely, 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. 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 year. Stocks 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 story. A decade provides sufficient time for a company's innovations today to evolve into tomorrow's bestsellers, transforming projections of profits into tangible financial outcomes. With profit growth comes the possibility of an increase in share prices, often without proportionately escalating price-to-earnings ratios. Thus, 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 overstated. It begins with stringent laws and regulations, which will empower market mechanisms to attract earnest companies willing to share profits flexibly with smaller investors. Simultaneously, 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 exchanges. This platform would allow major stakeholders to trade their shares in a more regulated environment. Further, any listings on this platform can be distinctly marked within the transactional feed of the exchange. Such 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. First, it provides a negotiable space for large investors and major stakeholders, mitigating the risk of high valuations being artificially inflated by large players looking to liquidate their stakes for personal gain. Second, the competitive dynamics between frontrunners and withdrawing major shareholders will lead to a more accurate reflection of the company’s real value within the market, which is key for preserving the rights and interests of smaller investors.

Diving deeper into market investments, the A-share market is actually equipped with favorable conditions conducive to establishing a "slow bull." For one, there is widespread confidence in the principles upheld by Chinese financial regulators, who appear dedicated to reforming market rules. Each progressive step taken reforms the foundational framework necessary to sustain a “slow bull” environment. Secondly, as the focus shifts toward developing advanced productive forces, the high-quality outcomes of the Chinese economy stand to continually reinvigorate the A-share market with ongoing, prospective opportunities.

Importantly, amid concerns of economic hollowing out in Western countries, China's robust manufacturing industry continues to capture attention globally. This unique position endows China's assets with significant appeal to international investors, with the A-share market serving as their critical access point. Looking ahead, as the landscape of Chinese industry integration evolves alongside strengths in supply chains and innovation-driven improvements, the A-share market is poised to crystallize into a repository for premium assets within the manufacturing sector, thereby reinforcing a durable value proposition for both the market and its constituent companies.

Thus, the key takeaway for investors is to cultivate patience and embrace the philosophy of becoming friends with time.