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In the sprawling landscape of China's A-share market, history has shown that after every significant wave, a mere handful of investors emerge unscathed, let alone prosperousThe root cause of this pervasive setback often doesn't stem from investing during a bearish market, but rather from an unchecked urge to chase rising stocks during bullish trends — buying at unsustainable peaks only to find themselves embroiled in a downturnAs current indicators suggest a robust transition from bearish sentiment to bullish optimism in the A-share market, the critical question for investors remains: how can one maintain rationality amid the heights of market exuberance to sustain profits over the long haul?

On September 24, a press conference held by the State Council Information Office marked a pivotal moment, as the central bank and other regulatory bodies unleashed a suite of policies designed to inject liquidity into the stock market

The immediate aftermath of this announcement saw the Shanghai and Shenzhen stock exchanges respond positively, igniting an upward trajectory that continued well into the festive season following National DayThis sudden transformation from a bearish atmosphere to a thriving bull market showcased both the power of regulatory intervention and the fragility of market sentiment.

Indeed, the scale of the policy measures introduced was unprecedentedAmong these actions, the central bank's creation of two novel structural monetary policy tools aimed explicitly at the stock market marked a significant turning pointWith an initial scale of 500 billion yuan for swap convenience operations and 300 billion yuan for stock repurchase lending, these initiatives not only helped stabilize the market but halted the liquidity crises that had plagued it for more than a year

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Should these policies prove effective, subsequent injections could amplify their impact further.

Since July of 2023, a slew of policy changes aimed at uplifting the capital markets was met with persistent stagnation in the A-share marketAnalysts have pinpointed liquidity issues at the heart of this malaiseData from the central bank illustrated a worrying trend: despite a steady growth in M2 money supply, M1 had exhibited unprecedented negative growth, signaling a disconcerting retreat from liquid cash holdings into time-deposited savingsThis shift demonstrated not only a lack of confidence among investors but also exacerbated the already tenuous liquidity landscape as funds withdrew from the market.

Moreover, since January 2024, the Central Huijin Investment, the state-owned investment arm, had bolstered its stock holdings in various ETFs by several hundred billion yuan

However, even these massive purchases have struggled to turn the tide against the descending market pressuresShould the market breach critical support levels, liquidity challenges may exacerbate further, necessitating swift action from policymakers.

As valuation levels hovered near historic lows, this created a unique opportunity for cautious investorsThe data from the market indicated that prior to the advent of this latest resurgence, the average price-to-earnings ratio for the Shanghai 50 index stood at a meager 9.14, while the broader A-share market averaged just 14.62. Coupled with aggressive dividend policies encouraged by regulatory bodies, select blue-chip stocks became increasingly attractive, especially in light of poor returns from bank deposits and treasury bonds.

The implementation of these progressive policies reflects a serious commitment from market regulators to infuse vitality into the capital markets

The China Securities Regulatory Commission has reiterated its intent to actively engage in promoting conducive policies like share buybacks and special lending facilities, thereby signaling a much-needed recoveryWith these policies bearing fruit, the cumulative effects of favorable measures instituted over the past year could soon manifest, potentially reviving not just investor confidence, but market liquidity as well.

However, history warns caution: the A-share market has a history of pronounced rapid ascents followed by equally dramatic descentsIn the 1990s alone, there were three distinct instances of explosive growth fueled by sudden regulatory changesEach occurred after extended periods of bearish conditions, demonstrating a clear pattern of volatility that has persisted through time.

The first spike occurred on July 30, 1994, when new measures to stabilize the market triggered a flood of investment, with the Shanghai Composite Index soaring dramatically from 333.92 to 445.64 points in just a day—an increase of nearly 33.46%. What followed was a frenzied accumulation of stock prices, resulting in a remarkable peak of 1052.94 points just weeks later, only for the market to crash afterward

Such patterns are synonymous with market exuberance that far outstrips underlying fundamentals.

Females of the 1995 and 1999 hikes followed similar trajectories, marked by impressive government interventionInvestors at the time faced the exuberance of sharp price rallies, but these advances were unsustainable, leading to devastating correctionsThe primary lesson visitors to the A-share market today should learn from this cyclic history is the precarious balancing act of bull and bear marketsEach surge often leads to disillusionment when combined with a lack of understanding and overreliance on hasty trading decisions.

As the current phase unfolds, the lessons of the past remain poignantRegulatory frameworks now allow for a more controlled volatility when it comes to spikes in stock prices

However, on the threshold of the present market's resurgence, discrepancies between valuations across sectors—such as the significant interest in small-cap stocks—present a dangerous allure that could result in mass weaknesses should the excitement turn to ebullience.

Investors must prioritize rational thinking over impulsive decisionsThe focus has been emphatically on value investing and long-term strategies, evidenced by a notable increase in investments directed toward ETFs that aggregate blue-chip firmsDespite this, surges within the lower-cap stocks, buoyed by their greater price ceilings, should not divert attention from broader market fundamentals.

Astute investors should remain aware that the current environment—marked by influxes of liquidity and improved regulation—could quickly lead to market irregularities if unbridled enthusiasm prevails