As we step into 2025, the performance of the A-shares market has not been as smooth as hopedAt the beginning of the year, there was a notable plummet, which saw the market breaking below previously stabilized levelsNow, as we face a period of adjustment, the pressing question is: How should investors respond? After a disappointing start this year, is there still hope for a bustling spring rally?

The A-share market has witnessed a turbulent series of events post-New Year, indicative of a broader declineThis raises a multitude of considerations regarding the adjustments taking place in the A-share landscape and how investors should strategize moving forward.

Historically, the A-share market observes distinct patterns around the turn of the year, particularly in November to March, which is often identified as a "calendrical effect." During this time, the trend reflects a tendency for larger companies to outperform their smaller counterparts.

Data from GF Securities analysed the performance of broad-based and style indices over the past 15 years, noting that the period from New Year to the Spring Festival often sees small caps lagging behind large caps by an overwhelming probability of 80%. Conversely, from the Spring Festival through to the annual Two Sessions, a stark reversal occurs, with small caps beginning to outperform large caps 93% of the time.

The logic behind this seasonal pattern is relatively straightforward

The months leading up to annual earnings reports are marked by uncertainty, as companies are often quiet on the earnings front, giving investors ample reason to tread carefully in smaller company stocks during this timeConsequently, once the risks of anticipated earnings reports loom, cautious investors may opt for safer investments.

A lot of attention is placed on August's implementation of new national guidelines, which may bring tighter regulations for smaller companies, stoking concerns about their stability and further compounding the downward pressure on small-cap stocks.

However, it's the unforeseen decline of large-cap stocks that has truly caught many by surprise in early 2025. Post-mid-November, a marked slowdown in the inflow of margin trading capital, which had previously been driving pricing up, became increasingly evidentConsequently, the exchanges have witnessed a contraction in transaction volumes.

In instances of market downtrends, investor focus shifts towards intrinsic company values as opposed to speculative opportunities, especially when key fundamentals are faltering

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Since mid-December, investor sentiment has leaned towards caution, and as the larger meetings, which are pivotal for policy direction and economic strategy, concluded, the market finds itself in a state of anticipation, with currents of uncertainty influencing trading decisions.

Overall, this adjustment signifies a trend towards a market-based mean reversionIt follows a period where high risk preferences dominated due to policy expectations and attractive valuation recovery zones, creating a scenario where previously successful sectors are seeing a sharp pullback.

The pivotal question remains: Is there any possibility for a spring market comeback? Currently, the market finds itself at a critical juncture, once again testing the thresholds under 3200 pointsDo we have the underpinnings for a recoverable spring rally?

According to analysts from Shenwan Hongyuan, the potential for profit-taking has dwindled in the immediate term, but with any subsequent adjustments, the prospects for a spring rally could take shape

The uncertainty remains with regard to whether the pace of these adjustments will intensify or if structural issues will persist.

Huajin Securities suggests that this year could see a continuation of accommodative policies paired with limited external risks, which likely positions us back on track for a spring rally — presenting ample opportunity for opportunistic buying at lower price points.

Meanwhile, Huatai Securities points out that with ample liquidity, a gradual economic recovery, and proactive policy shifts, there is indeed a foundational basis for a spring rally, although it necessitates acute attention to market timing.

Historical analyses of instances where the market opened the year poorly provide an intriguing perspectiveSince 2010, on six instances when New Year’s trading was negative, five of those years coincided with notable spring rallies largely fueled by liquidity-enhancing policies.

The recurrent theme of spring rallies in the A-share market is no mere coincidence

Factors such as adjustments by the central bank, significant economic data releases, and influential meetings inevitably catalyze these ralliesGiven the recent favorable signals from the Central Economic Work Conference and the potential upcoming reserve requirement ratio cuts, a spring rally could indeed be on the horizon.

From a long-term perspective, policy changes are paramount to influencing A-share dynamicsMany current market anxieties appear to have already been priced in, and a shift in policy direction typically signals new opportunities for resilient investors.

What strategies should investors adopt moving forward? Our annual equity strategy previously emphasized a dividend-paying strategy as one for the new yearIn light of recent downturns post initial market exuberance, the subsequent phase of this adjustment will likely experience reduced pessimism, guiding the indices towards a stabilization and fluctuating phase.

With the anticipation of outside risks materializing and internal policy stimuli taking effect, this shift could serve as a crucial turning point

Those who executed a defensive dividend strategy will be in a stronger position to strategically allocate in the event that smaller market segments begin offering enticing entry points.

Data indicates that January and February are often characterized by pronounced seasonal effects, leading into early MarchHistorically, the investing trends pivot from overvaluations towards undervalued opportunities, which positions small caps favorably in this timelineLarger trends such as easing liquidity and market volatility entail that solid adjustments will be important at the critical 'April decisions' mark; without solid affirmations from fundamentals, both indices and small caps may face considerable adjustments.

In the mid-term outlook, while most catalysts remain dormant, there isn’t a significant risk of catastrophic falls in index numbersMarket fluctuations will likely continue to relate closely to external perturbations and policy fintechs, mirroring shifting investor expectations

The pivots from extreme pessimism often signal a strategic buying window, whereas phases of optimism afford opportunities to trim positionsBalancing exposure in response to anticipated changes will be essential.

As the markets conclude successive declines in concert with Treasury yield reductions, the risk premiums associated with the A-share market are aligning with historical norms that favor equity investment strategiesIn practical terms, maintaining an optimistic yet cautious outlook is advisableThe difficulty in pinpointing the exact timing of market rebounds requires calculated strategies, especially in scenarios where heavy investments may induce immediate paper losses, putting trader sentiment on the defensive.

In conclusion, the dichotomy between thematic stocks and value-driven assets remains prominent; low-cost entries need to be approached judiciouslyIf increasing holdings, a phased approach through incremental purchases might refine portfolio cost profiles