Event-Driven Investing: The Ultimate Strategy for Bull Markets | Moomoo Research

From September 23 to September 30, the Hang Seng Index and the Shanghai Composite Index rose by over 16% and 21%, respectively, with the Shanghai Composite Index surging more than 8% in a single day. A-shares, Hong Kong stocks, and global Chinese assets entered an epic frenzy. In this hot market, this article will discuss two core questions:

1. How long will this bull market last?

2. What trading strategies should we adopt during the bull market?

Recently, there has been a flurry of favorable policies in China, aimed at enhancing market liquidity and stimulating economic growth, thereby injecting strong momentum into the stock market. Driven by multiple favorable policies, the Chinese stock market has ushered in one of the most ferocious bull markets in history, with the Hang Seng Index rapidly climbing from 16,000 to 21,000 points. In such a heated market, many investors may ask how the bull market will evolve in the future. Is it a fleeting moment or a long-lasting bull?

Event-driven strategies focus on capturing the market's underreaction or overreaction to specific events to achieve excess returns. These events may include macro policy changes, key industry events, corporate mergers, reorganizations, bankruptcies, and significant changes in capital structures, often leading to sharp fluctuations in related securities prices. As investors, we need to deeply analyze these events and predict their potential impact on asset prices, allowing us to make decisive investment decisions before the market reacts. The specific logic is as follows:

In a bull market, event-driven strategies are particularly effective. Bull markets are usually accompanied by optimistic market sentiment and strong expectations for economic growth. In such an environment, certain events may be over-interpreted by the market, leading to rapid surges in related securities prices. For example, when a merger announcement is made, market sentiment may be ignited instantly, causing stock prices to rise sharply. At this point, investors using event-driven strategies can position themselves in advance of the market's reaction, seizing the opportunity to profit from price increases.

By comparing the current economic situation and policy measures, we find that the explosive bull market of 2014-2015 is strikingly similar to the current situation. Therefore, we will review the bull market of 2014-2015 to explore possible future market evolution directions.

First, let’s review the development trajectory of the 2014-2015 bull market:

1. The starting point of the bull market. At the end of 2014, with economic adjustments, the door to easing was opened.

2. The outbreak of the bull market. In the fourth quarter of 2014, driven by expectations of monetary easing, brokerage stocks opened the curtain on the bull market.

3. Difficult to buy back a bull. Continuous surges accumulated risk, and the cleaning up of off-site financing led to a temporary downturn.

4. The end of the bull market. After a prolonged high, market valuations became extremely inflated, ultimately leading to a stock market crash under deleveraging.

In summary, the 2014-2015 bull market was gradually inflated under policy-driven conditions, with the initial gains being significantly weaker than the current market's gains. The Shanghai Composite Index rose over 20% in the week from September 23 to September 30, 2024, while it took two weeks after the central bank's rate cut on November 21, 2014, for the Shanghai Composite Index to rise over 20%. Thus, we can see that the current market's increase is more rapid than that in the early stages of the 2014-2015 bull market.

1. In terms of real estate, it is still in the early stages of policy easing, with many measures to be expected in the future. For example, there is still room for further reduction in existing mortgage rates, and first-tier cities, except for Guangzhou, still have opportunities to announce the lifting of purchase restrictions.

2. In terms of people's livelihoods, the implementation of two-child birth subsidies is expected to boost residents' willingness to have children and reduce living costs. At the same time, various local subsidy policies, such as consumption vouchers and trade-in programs, are expected to be gradually announced, stimulating residents' consumption desires and driving domestic demand.

1. For Short to Medium-Term Investors. We can adopt an event-driven trading strategy, constantly monitoring policy developments and utilizing market sentiment. By positioning ourselves before an event fully unfolds, we can take advantage of the market reaction and cash out after the event has fully played out. Additionally, we can seize opportunities from sector rotations to diversify our investments.

In terms of sectors, we should prioritize the financial and internet technology sectors. The financial industry, especially brokerage stocks, typically performs well in the early stages of a bull market, as increased trading volumes directly boost broker revenues. The internet technology sector often benefits from the recovery of domestic demand and valuation rebounds, providing higher elasticity.

2. For Long-Term Investors. We need to return to fundamentals and invest in companies with solid fundamentals and stable growth potential. We should focus on investment opportunities in state-owned enterprises trading below net asset value.

State-owned enterprises possess strong investment value due to their robust cash flows and shareholder returns. In selecting investment paradigms, it is essential to pay attention to the "below net asset value + substantial cash reserves + ability to generate good cash flow" triad logic for investment opportunities. Long-term holding of high-quality stocks will yield more stable and higher returns.

Remember, no matter how turbulent the market may be, rational analysis, calm judgment, and timely action are the compass that guides us steadily through the ocean of investment.