Volatile Movements! Investors in A-Shares Are Already Feeling Burned Out

Entering the spring season, the A-share market’s volatile trend kicked off as expected, with thematic rallies in commercial aerospace and AI applications remaining active. As profit-driven sentiment spread, fear of missing out surged, driving off-exchange funds into the market, pushing the Shanghai Composite Index up to a peak of 4190 points.

In this context, the A-share market shows signs of short-term overheating: weekly equity fund inflows surged by tens of billions of CNY, margin financing repeatedly hit new highs, and single-day trading volumes expanded to 4 trillion CNY. Expected regulatory measures followed: margin ratios increased from 80% to 100%, multiple broad-based ETFs saw net outflows of tens of billions, and large sell orders appeared on major stocks at the close. The market adjusted but remained strong, with the Shanghai Composite Index still above the 5-day moving average.

The recurring pattern of "thematic rallies – index surges – cooling adjustments" may continue. For investors, the key is to avoid being distracted by short-term volatility and focus on capturing long-term market growth.

1. Fully Understand the Long-Term Slow Bull Trend of A-Shares

Promoting a healthy bull market has become a regulatory strategic focus. A deep and vibrant A-share market can gradually take over the role of wealth accumulation previously shouldered by real estate, provide new engines for wealth growth, expand corporate equity financing channels, optimize balance sheets, and support the development of new productive sectors for high-quality economic growth.

From the perspective of domestic demand and wealth growth, expanding domestic demand is crucial amid rising global uncertainty. The real estate market’s volatility has weakened consumption driven by income growth. Experience in developed countries shows that as economies develop, the share of real estate in household assets tends to decline, while equities steadily increase. In 2025, the Shanghai Composite and Shenzhen Component rose 18.41% and 28.87%, with total market capitalization increasing by 22.55 trillion CNY, roughly translating to 16,000 CNY per capita in household wealth.

Developing equity financing is key to enhancing corporate capital strength and optimizing debt structures. Currently, China’s financing system is debt-dominated, but A-shares are expected to continue gaining prominence in equity financing. Capital markets uniquely provide risk pricing, maturity matching, and funding supply, supporting high-tech sectors such as AI, advanced chips, and humanoid robots. Companies like Moore Threads and Muxi successfully listing on A-shares exemplify the capital market’s role in supporting technological innovation and industrial upgrading.

The long-term upward trend of A-shares remains intact. Short-term pullbacks are normal and provide investors with opportunities to accumulate quality positions, avoiding the pitfalls of fast bull markets driven by herd mentality.

2. Implied Volatility as a Sentiment Indicator

For a sustainable slow bull market, "long" and "slow" are key. Long-term low volatility is a crucial feature. The implied volatility of the CSI 300 ETF is a useful short-term indicator of market overheating.

When implied volatility is low, market sentiment tends to be rational, and upward trends are more sustainable. When it spikes to historical highs, market euphoria and crowded trades increase, making short-term corrections more likely. For instance, in this year’s Spring Festival rally, implied volatility peaked at 22.19 on January 12, coinciding with the Shanghai Composite reaching 4190. Similar patterns occurred on August 26, 2025, and October 8, 2024.

3. Investment Strategy Recommendations

• Maintain long equity positions: Focus on trends rather than short-term noise, holding the majority of positions to capture core upward momentum.
• Invest in fundamentally solid sectors: Emphasize industries with improving earnings and positive outlooks, such as non-ferrous metals, electronics, and power equipment.
• Use small positions for tactical adjustments: Buy during low volatility and sentiment; consider partial profit-taking during high volatility or overheat periods.