China Securities Co., Ltd.: Can the structural market turn fully bullish? Key factors include funds, valuations, and risk premiums in three major dimensions.

China Securities Co., Ltd. released a research report stating that compared to the liquidity bull market from May 2014 to June 2015, the current bull market from September 2024 to present has similarities in market sentiment, as well as many differences. In comparison, the emotions at the "level" of aspects such as trading volume and turnover rate in this bull market are similar to the peak of the previous bull market, but there are still gaps in the emotion indicators of "funds," "valuations," and "risk premiums" due to the more obvious structural characteristics of the current bull market. If it progresses towards a comprehensive bull market, the emotion indicators of these three dimensions will quickly rise. Key points from China Securities Co., Ltd. are as follows: 1. How to build a complete set of emotion indicators? In measuring market sentiment, they start with five dimensions: "volume," "price," "funds," "valuations," and "risk premiums." Volume includes the proportion of trading volume to total market value, and the turnover rate. Price includes the proportion of stocks that rose on the day, and the proportion of stocks that rose in the past 3 months. On the fund level, it covers the proportion of net active buying to trading volume, the stock positions of public funds, the proportion of margin buying to trading volume, and the margin balance to A-share market value. On the valuation level, they choose the dynamic price-to-earnings ratio of the total A-share market, the average dynamic price-to-earnings ratio of 31 Shenwan industries, and the total A-share market price-to-book ratio. The risk premium is the difference between the implied return rate of the total A-share market and the yield of a 10-year government bond. They calculate the historical percentile level of each of the 12 indicators above, sum them, and take the average as the overall index to measure market sentiment comprehensively. 2. How effective is the historical backtesting of the comprehensive sentiment index? According to historical retrospective data, the overall market sentiment index is closely related to the trend of stock indexes and has a leading effect. During the bull market that started in May 2014, the total market sentiment index peaked on April 22, 2015, before the peak of the total A-share index on June 12, 2015. In the current bull market that started in September 2024, the total market sentiment index peaked on September 25, 2025, before the total A-share index reached a temporary peak on October 29, 2025. 3. Which historical bull market can this bull market be compared to? Looking back at the macroeconomic and stock market performance over the past 20 years, there were two bull markets that occurred during periods of weak actual growth readings. The first was from May 2014 to June 2015, and the second has been from September 2024 to the present. Both bull markets experienced rapid upward movement, but the nominal growth performance behind them was weak, and the Producer Price Index (PPI) remained in a negative growth process. The market often interprets bull markets under weak fundamentals as liquidity-driven trends. However, they do not necessarily agree with this view. The reason why a stock market bull market can occur during a period of weak economic data is that the stock market often prices in advance. Therefore, it cannot be said that the bull market is disconnected from the fundamentals, but rather, the more accurate expression is that major bull market trends tend to occur when continuous pessimistic expectations are turning around, even though actual growth readings at that time are weak. Comparing these two bull markets, the reason they were able to occur during periods of weak economic data is that both bull markets had fully priced-in expectations. Therefore, paying attention to sentiment indicators and tracking the progress of the bull market is more necessary. 4. How are the emotion indicators of this bull market interpreted? Looking at the overall market sentiment index: The overall market sentiment index reached its historical peak during the first bull market, and this bull market is still below that historical peak. The highest the overall market sentiment index reached during the first bull market was at the 95.5th percentile. In this bull market, the overall market sentiment index reached a maximum of 78.7th percentile. Looking at the emotion of the "volume" aspect: The emotion indicators of trading volume and turnover rate in this bull market are already at the peak levels seen in the previous bull market. The percentiles of trading volume as a proportion of market value and turnover rate both reached 99.9% during the first bull market. In this bull market, as of the end of August 2025, the percentiles of these two indicators have also consistently reached around 99% for several days, with sentiment already basically at the peak level of the previous bull market. Looking at the emotion of the "funds" aspect: The sentiment indicators of active buying, margin trading, and fund positions in this bull market have not reached the highs of the previous bull market. During the first bull market, the percentiles of active buying as a proportion of trading volume, margin trading as a proportion of trading volume, margin balance as a proportion of A-share market value, and fund positions all reached 100%, which was the historical highest level. As of now in this bull market, the emotion of active buying, leveraged funds, and fund positions is lower than in the previous bull market. Looking at the emotion of the "valuations" and "risk" aspects: The sentiment indicators for price-to-earnings ratio, price-to-book ratio, and risk premium in this bull market are significantly lower than the highs of the previous bull market. 5. What characteristics of this bull market are reflected by the comprehensive sentiment index? From the structure of the sentiment indicators, the emotion of this bull market is relatively complex. While the sentiment at the "volume" level, such as trading volume and turnover rate, is quite extreme, the emotions at the levels of "funds," "valuations," and "risk premiums" are relatively weak. The strength in trading volume is due to the declines in bond markets, deposits, and real estate returns, with only the equity market showing good returns, attracting a substantial amount of funds. The strength in turnover rate is because this bull market is structural, with significant increases mainly in stocks with high turnover rates and low market values. Additionally, the rapid changes in the global macro environment this year have led to changing market expectations. The weakness in fund sentiment is because the traditional indicators they use do not fully measure the full picture of incremental inflows into the market in this bull market, with a lack of high-frequency indicators that can effectively capture the strength of these inflows from medium- to long-term insurance funds and private equity funds predominantly composed of high net worth clients. The weakness in valuation and risk premium sentiment is also due to significant market structure differentiation. There is a clear division between low valuation domestic demand sectors and high valuation technology sectors in this bull market. 6. How is the progress of this bull market reflected by the comprehensive sentiment index? Just looking at the sentiment in the technology industry, it has significantly exceeded the overall stock market. In the previous bull market, there were distinct changes in market styles and trading heat during its long duration, indicating different periods within the bull market. The sentiment indicators show that this bull market has also seen a clear structural trend. In terms of volume, the technology sector represented by electronics, communications, and computers has a trading volume proportion to the total market trading volume that is far higher than the previous bull market. In terms of fund sentiment, leveraged funds in this bull market have significantly leaned towards the electronics, communications, and computer industries. In terms of valuation, the sentiment in the technology industry in this bull market is close to historical highs and significantly stronger than other industries. If this is a comprehensive bull market, then the sentiment is clearly not at its peak. In addition to trading volume and turnover rate, a further strengthening of fund sentiment may require the push of incremental positive information, such as increased macroeconomic policies or improvements in economic fundamentals, to boost buying confidence, leveraged funds, and public fund positions. For a further increase in valuation sentiment, it may require an improvement in the valuations of industries other than technology, especially in cyclical and consumption industries, which may need to wait for signs of a turning point in domestic demand.