Behind a stagnant index, the market is quietly gaining strength

In the first half of the year, the CSI 300 Index barely rose by 0.03%, yet the median increase among 5,400 stocks reached 9.7%. Even with little movement in the broader index, small and mid-cap stocks were highly active. This shift in market style suggests rising risk appetite among investors and increasing investment opportunities.

Despite tariff pressures from the U.S., market momentum is building and trading volume is expanding

The Shanghai Composite Index and the All-A-Share Index have fully recovered from the impact of U.S. tariffs and hit new YTD highs. Meanwhile, trading remained robust, as total A-shares trading volume reached a record-breaking RMB 159 trillion in the first half, the highest half year volume in history. This is in stark contrast with the previous two years of a bear market.

Low interest rates highlight the value of stock investments

At the start of this year, the yield on 10-year government bonds dropped below 1.7%, and returns on bank wealth management products fell accordingly. Massive capital in the bond market seeks alternatives. In contrast, the dividend yield of CSI 300 Index stocks hit 3.5% (only 45% of total net profits are being paid out as dividends, leaving 55% still undistributed), and the CSI 300 Index has a price-to-earnings (P/E) ratio of 13, compared to the S&P 500’s 1.3% dividend yield and P/E of 22 — making China's stock market relative more attractive.

Institutional investors such as China sovereign fund and insurers actively support and lift the market floor.

China sovereign fund (Central Huijin) made large ETF purchases to support the market. At the end of Q1 2025, insurance funds held RMB 2.8 trillion in stocks and mutual funds, up RMB 483 billion from end of 2024. Insurers frequently increased their holdings in high-dividend bank stocks, driving the bank sector index up 14.5% in the first half.

Skepticism about the market rebound remains widespread

Since the market peaked in 2021 and adjusted until September 24 of last year, the CSI 300 index saw a maximum decline of 45%, casting a lasting shadow over investors. Although the market is quietly strengthening, many still lack confidence in both the economy and the market’s upside potential — a typical sign of an early bull market.

Corporate revenues and profits continue to weigh down the market

First-quarter earnings reports show weak revenue and profits across listed companies, presenting the biggest market pressure. However, the short-term direction of the market is shaped by supply and demand of capital and assets. Liquidity often improves before the economy does — and the market tends to rally ahead of economic recovery. Once the economy begins to improve, the bull market may already be halfway through. Revenues and profits may bottom out in Q3 or Q4, with the market already pricing in the turnaround.

Tariff disputes have a diminishing impact on the market

The tariff disputes in April marked China’s shift from passive to proactive in its long-term competition with the U.S. The immense value of China’s supply chain forced the U.S. to reconsider its approaches. Subsequent negotiations have clearly moved toward de-escalation. While the 2018 trade war dragged A-share market down for a year, this year’s impact was recovered in just one month. U.S.–China competition will remain long-term, but its impact on China’s development is waning.

Multi-strategy approaches are essential to navigating a structurally complex market

Though the major indices didn’t rise in the first half, volatility was high due to U.S. tariffs. Strength was concentrated in small caps, bank stocks, and selected tech and pharmaceutical sectors — making investment more challenging. Capturing these opportunities requires diversified skills: judgment of market direction, and strategies for investing in blue chips, small caps, and growth stocks. By combining active fundamental and quant methods through three strategies — large blue chips, small caps, and growth stocks — we achieved solid results. This validates not just each strategy’s effectiveness, but also the power of multi-strategy investing. The more tools a manager has, the more agile they can be.

Still in the early stage of a bull market, so seize the opportunity and stay invested

We believe the market is still in the early stage of a bull cycle. Market valuations offer a good risk-reward ratio. The low interest environment is drawing funds into stocks. While the market is quietly strengthening, investors are not yet fully convinced. As corporate revenues and profits likely to bottom out in the second half of the year, investor sentiment will improve, and the market will react ahead of that. After four years of retraction, this is a valuable investment opportunity worth embracing.