WE Think：Why can't you make money in bull markets?

July Market Recap: A-Shares Outperform Amid Policy Tailwinds

In July, A-shares delivered robust performance across key benchmarks, with the Wind All A Index advancing 4.75%, the CSI 300 gaining 3.54%, and small-caps (CSI 2000) significantly outpacing large-caps. By comparison, the Hang Seng Index and Hang Seng Tech Index rose modestly (+2.91% and +2.83%, respectively). This divergence reflects two catalysts: (1) supply-side reforms targeting industrial overcapacity, framed as "anti-involution" measures, which bolstered earnings expectations in cyclical sectors; and (2) improving risk appetite, driven by sustained momentum in growth equities.

However, market breadth remains uneven—while indices rallied, a material subset of stocks stagnated or declined, exacerbating sentiment polarization. This month’s analysis examines the mechanics of bull markets and the behavioral pitfalls that prevent investors from capitalizing on them.

Bull Market Dynamics: Must Economic Growth Lead?

Conventional wisdom posits equities as a macroeconomic barometer, yet empirical evidence shows markets lead economic cycles. In China, the PPI has proven a more reliable indicator of market momentum than GDP. For instance, during the 2013–2015 bull market, A-shares rallied despite persistently negative PPI readings, underscoring that waiting for macroeconomic confirmation often results in missing opportunities.

Bull markets typically emerge under two conditions:

1. Compelling valuations (e.g., trough P/E multiples);

2. Early leadership by high-quality growth stocks, which often bottom 12–24 months before broad indices.

The initial phase is marked by languishing indices while selected stocks with superior fundamentals attract capital, laying the groundwork for a sustained uptrend.

Why Most Investors Underperform in Bull Markets

Winning strategies share common disciplines; losses stem from recurring behavioral errors:

1. Cyclical Mistiming – Exiting near troughs (pessimism) and chasing peaks (FOMO);

2. Performance Chasing – Overweighting "star" sectors at unsustainable valuations;

3. Paralysis by Analysis – Recognizing the rally but hesitating due to perceived flaws in leaders or value traps in laggards;

4. Premature Profit-Taking – Selling winners during volatility, missing subsequent re-rating.

These failures often attribute to incomplete investment frameworks and emotional decision-making. Like mastering mathematics, consistent returns require internalizing core principles—not reacting to noise.

Key Considerations for Investors:

Risk Perspective: A structural approach carries minimal downside, with high-quality companies keeping pace even in broad rallies.

Sector Allocation: With "anti-involution" policies taking effect, expect turning points in overcapacity sectors, shifting from a growth stock-dominated phase to a more balanced cyclical recovery.

Adjustment Mindset: Corrections are inevitable even in bull markets. Maintaining resolve is crucial to avoid missing subsequent new highs.

Duration Outlook: While predicting bull market longevity is challenging, historical data shows that funds have extended gains post-new highs, with current market risk remaining subdued.

Conclusion：

The current market may be a structural bull market favoring selective opportunities rather than a universal rally. Investors should avoid the obsession with perfection and aim for "good enough" returns that outperform bonds. Genuine independent thinking and understanding of industry fundamentals are essential for consistent profitability. When a bull market arrives, settling for solid positive returns becomes a highly probable outcome, and perfection is not required.

Wu Weizhi

Singapore, 2-August-2025

本期《偉志思考》簡體中文版鏈接：

伟志思考：为何牛市来了多数人还是赚不到钱？