According to the Zhichun Finance APP, Xinda Securities released a research report stating that at the end of September this year, A-shares experienced a wave of increase. If a second wave of increase occurs, what conditions need to be met in the economic fundamentals? A review of the A-shares history reveals that after the first wave of the bull market ends, there is often a significant second wave, requiring three major conditions in the economic fundamentals. Condition 1: Stability in manufacturing industry performance, with corporate profits stabilizing and rebounding. Condition 2: Prices achieving weak stability, at least showing a phase of weak stability. Condition 3: Strong stabilization in real estate sales.

Cinda Securities' main points are as follows:

At the end of September this year, A-shares experienced a wave of increase. If a second wave of increase occurs, what conditions need to be met in the economic fundamentals? A review of the A-shares history shows that the company has found a significant second wave after the first wave of the bull market ends, which often requires three major conditions to be met in the economic fundamentals.

Condition 1: Stability in manufacturing industry performance, with corporate profits stabilizing and rebounding. As a major manufacturing country, china reflects both internal and external demand, and most production will be reflected in the performance of the manufacturing industry. Moreover, A-share manufacturing enterprises account for a high proportion, and the impact of manufacturing on the economy is greater compared to the service industry. At the same time, the recovery in manufacturing performance also needs to be reflected in the stabilization and rebound of cumulative corporate profit growth. If profits remain low, it is difficult to trigger the second wave of the bull market. For instance, in April 2019, when profits were lingering at low levels, the market entered a prolonged adjustment.

Condition 2: Prices achieving weak stability, at least showing a phase of weak stability. Prices are often the result of supply and demand; the weak stabilization of prices also means that the current supply and demand are not deviating significantly from each other. Additionally, changes in the Producer Price Index (PPI) affect corporate profitability, with PPI stability being crucial. For example, when the second wave of the bull market occurred in February 2007 and February 2015, the Consumer Price Index (CPI) stabilized or even rose, while the PPI was basically stable, at least showing a phase of weak stability.

Condition 3: Strong stabilization in real estate sales. Stability in real estate is also an important condition for economic fundamentals, but this stabilization may not completely reflect in the stabilization of real estate investment growth. Because the year-on-year growth of real estate investment is often influenced by strict policy regulations, the stability of real estate sales may be more stable in reflecting expectations and confidence than the indicators of real estate investment. A rebound in real estate sales from the bottom can reflect a certain shift in pessimistic expectations; for example, when the second wave of the bull market occurred in February 2007 and February 2015, the growth rate of real estate sales both achieved a rebound from the bottom.

Currently, the fundamental conditions for the second wave of the bull market have not yet fully matured, and the determining factors in the market may still be on the policy side. Compared to the three major conditions, some of the conditions for the second wave of the bull market are currently met: the conditions for the stabilization and recovery of manufacturing prosperity have been satisfied, there are initial signs of price stabilization, and the decline in real estate sales has begun to show a smaller narrowing. However, the condition that has not been met is the stabilization of profits—current corporate profit growth is still hovering at a low level. Therefore, currently, the fundamental conditions for the second wave of the bull market have not yet fully matured, and the determining factors in the market may still be on the policy side.

Risk factors: geopolitical risks, and international oil prices rising beyond expectations.