The art of looking at bright side in a slump and weighing the next move

Beware the ides of September, they say. September must have been a sullen month for most A-share retail investors.

By Sept 23, the benchmark Shanghai Composite Index had shed nearly 6 percent over the past month and was down nearly 10 percent from the previous peak of 3424.84 reached on July 5.

When resurgent COVID-19 cases hit Shanghai in early April, the SCI approached the bottom so far this year of 2863.65 points on April 27.

Low trading activity confirmed the market's downbeat mood, a far cry from the halcyon days of the second half of 2021, when the combined daily turnover of the Shanghai and Shenzhen bourses frequently reached or exceeded 1 trillion yuan ($139.22 billion).

This September, the corresponding figure was mostly below 700 billion yuan.

Make no mistake — every sector slid in September. Semiconductors, photovoltaics, auto parts, pharmaceuticals and aesthetic medicine ...you name it — all the hitherto buoyant sectors that had enjoyed gains in the previous months took a severe beating, leaving investors dismayed and distressed.

Rapid changes in the fortunes of "hot" sectors — that has been a major theme of the A-share market this year. Market talk is that some mutual fund managers have never invested in the right sector at the right time so far this year. Even seasoned investors got whacked, which should console rookie investors that there's no need to feel overly depressed at a time of rapid changes and multiple market uncertainties.

The external pressure has partly overcast the A-share market. Given the Fed's sustained tightening, the US 10-year Treasury yield has touched new highs once again. The A-share indexes, which are negatively correlated, predictably came under much pressure under such circumstances.

The renminbi exchange rate also slid significantly due to the continued interest rate spikes in the United States. While the equities market will naturally perform more cautiously against that backdrop, concerns have arisen in terms of capital outflows and stability on the external needs front.

But let's look at the bright side. To be sure, most of the nose-diving A-share sectors have been overly hyped over the past few months. The recent retreat, therefore, is simply a return to their true value. Proof? A-share large-caps like insurance companies and commercial banks have remained stable in recent months.

On the other hand, the expectation of economic regression in the US will suppress the continued rise in risk-free interest rates in the country. In this sense, the external pressure on the A-share market is likely to be alleviated in the fourth quarter as the US 10-year Treasury yield may decline by then as inflation readings contract.

The endogenous power of the A-share market, or China's economic fundamentals, is more important. Major economic indicators have shown a marginal recovery in August. The total value added of industrial enterprises with an annual primary business revenue of at least 20 million yuan each surged 4.2 percent year-on-year, beating previous market expectations.

The total retail sales of consumer goods also gained 5.4 percent year-on-year to exceed 3.6 trillion yuan in August. Fixed-asset investment increased by 6.6 percent year-on-year, which was the highest since April this year.

The A-share market has probably reached a time window when "confidence is more important than gold", as an old Chinese saying goes. Most economists and industry experts have reached a consensus that a GDP turnaround can be expected in the third and fourth quarters. In this sense, the A-share slump over the past month or so may have provided a good investment window.

But for the time being, rather than jumping into adventurous attempts right away, it is probably safer to wait for more confirmed signs in government policies or economy-stabilizing signs before making any spur-of-the-moment moves.