Last week, our A-share market ushered in a pullback after four consecutive weeks of rising. According to Wind data, the volatility of major indexes has significantly increased. Why did the market retreat? What stage does this adjustment mean? Is the market finished?
We cannot "stop the head" for such an important issue. Let us use eight more common market indicators to analyze where the market's "process" has gone.
1. Eight major observation indicators "in the eyes" market
(I) Category 1: The size of the macro eye
1. The ratio of market value to GDP
The ratio of market value to GDP, also known as the securitization rate or "Buffett indicator", is an important indicator to measure a country's stock market size relative to its total economic output. In layman's terms, it is like a "securitization thermometer" of a national economy: when the ratio is between 70% and 80%, it indicates that the stock market valuation is relatively reasonable; if the ratio exceeds 100%, it indicates that there may be bubbles in the market and investment should be more cautious; and if the ratio is below 50%, it indicates that the market is seriously undervalued, which often corresponds to historic investment opportunities.
Recalling the history of A-shares, according to Huachuang Securities statistics, this ratio in the A-share market exceeded 100% in two major markets in October 2007 and June 2015, reflecting that the market sentiment was relatively high at that time. As of August 29, the current A-share ratio was 85.6%, which is still at a relatively reasonable level and has not seen any significant overheating.
Picture release date: September 1, 2025
2. Ratio of market value to resident deposits
The ratio of A-share total market value to resident deposit balance is an important reference for observing changes in residents' asset allocation structure. This indicator can be commonly understood as the relative proportion between stock assets and bank deposits in the total wealth of residents, thus reflecting investors' preferences and risk attitudes towards financial assets.
According to statistics from Huachuang Securities, from historical highs, A-shares had a market value exceeding residents' deposits at the peak of three major markets, including 2007 and 2015. The five-round market highs since 2008, the average ratio is 102.3%, indicating that the stock market value is roughly the same as the scale of residents' deposits when the market is high. As of August 29, 2025, this ratio was 73.2%, still lower than the historical market high. Huachuang Securities believes that this shows that from the perspective of residents' asset allocation, A-shares may still have room for further growth.
Picture release date: September 1, 2025
(II) Category 2: The popularity in the eyes of trading
3. Transaction volume and turnover rate
The activity of market transactions can usually be observed through two key indicators: one is the transaction volume, that is, the total amount of stock transactions in the market, reflecting the overall scale of capital inflows and outflows; the other is the turnover rate, which indicates the frequency of stock transactions within a certain period of time, reflecting the activity of investors' trading.
In terms of transaction volume, the starting stage of this round of market is calculated on April 7, 2025, with an average daily transaction volume of approximately 1.6 trillion yuan. As of August 29, the middle highest reached 3.19 trillion yuan, and the peak is about twice the starting point. According to statistics from Huachuang Securities, looking back at the seven major market trends since 2007, in contrast, although the current transaction volume has increased, there is still room for continued expansion in the future.
From the turnover rate (transaction volume/total market value), the maximum turnover rate in this round of market is 2.76%, up 0.99% from the starting point of the market. Although the current turnover rate has increased, it is still at a low level compared with the same period in history, reflecting that investors' trading sentiment has not been fully released, and the turnover rate still has room for further upward in the future.
Picture release date: September 1, 2025
4. Transaction congestion:
Trading congestion is an important indicator for measuring sentiment and capital concentration in specific industries. Huachuang Securities uses CITIC's first-level industry classification as the standard to count the top three industries in each trading day and their trading volume and the sum of the total A-share transaction volume. The higher the ratio, the more concentrated the funds are in popular sectors, which may reflect the high market sentiment but also implicit the risk of a pullback.
According to Huachuang Securities statistics, as of August 29, 2025, the maximum trading congestion of this round of market has reached 39.3%, an increase of 11.5 percentage points from the starting point of the market (27.7%). Huachuang Securities believes that this increase is at a high level in previous markets, indicating that funds quickly pour into some tracks in the short term, and there may be little room for subsequent crowding.
Picture release date: September 1, 2025
5. Profit-loss ratio and drawdown risk
Profit-loss ratio and drawdown risk are important indicators for measuring market investment experience and potential fluctuations. Usually, the way we calculate the profit-loss ratio is: in a round of market conditions, the ratio of the trading days with an increase of more than 1% to the days with an increase of more than 1%. The higher the value, the more obvious the market's money-making effect. The risk of retracement is measured by the ratio of days with a decline of more than 1% within the range to all trading days, reflecting the frequency and stability of the market's significant decline.
As of August 29, 2025, the drawdown risk of this round of market was 5.9%, and the previous seven rounds of market were above 10%. In the last three markets, the drawdown risks have reached 13.1%, 14.1% and 14.7% respectively. In contrast, a significant feature of this round of market conditions is shown - the risk of drawdown is relatively low.
From the profit-loss ratio, thanks to the lower drawdown risk, the profit-loss ratio of this round of market reached 2.8, which is at a relatively high level, which means that the number of days of market rise in this round is significantly more than the number of days of decline in this round, and the investment experience is better.
Picture release date: September 1, 2025
(III) Category 3: Influx of incremental funds
6. The scale of margin financing and the ratio of market value
The balance of margin financing and securities lending (margin trading balance) and its ratio to the total market value of A-shares are important indicators for observing market leverage levels and capital sentiment. The scale of margin financing reflects the overall demand of investors to trade securities through borrowing, and its ratio to market capitalization can be used to measure the degree of participation and potential risks of leveraged funds in the market.
Wind data shows that as of August 28, 2025, the balance of the two markets and the two margin financing was 2.24 trillion yuan, which is 1.21 times the ratio compared to the starting point of 1.85 trillion yuan. Judging from the four rounds of market conditions since 2014, the increase in the balance of the two-financial balance has been higher than this round. For example, in the recent period, the balance of the two-financial balance is 1.34 times the starting point.
From the ratio of the balance of the two securities lending balance to the total market value of A-shares, as of August 28, wind data showed that the ratio was 1.91%, a slight decrease from the starting point of the market (2.03%). Compared with the proportion at the market high from 2014 to 2015 (2.85%), there is still a lot of room for improvement.
Picture release date: September 1, 2025
7. Fund shares
The changes in the monthly issuance shares of equity-oriented funds can reflect the strength of ordinary investors' willingness to enter the market through professional institutions, and are an important reference for observing the sentiment of off-market funds. It can be determined whether the popularity of public funds has increased significantly by calculating the ratio of the highest month of issuance shares in a round of market and the issuance volume in the starting point of the market.
Since this round of market, as of August, Wind data showed that the ratio was 1.1 times, that is, the scale of the highest month of fund issuance is only 1.1 times that of the starting month, and the growth is not significant. From the historical perspective, this multiple is usually significantly higher. For example, according to statistics from Huachuang Securities, in the last three rounds of markets, this ratio reached 3.1 times, 3.7 times and 3.8 times respectively; and in the large-scale market from 2014 to 2015, it even rose to 18.3 times at one point. Compared with historical data, the current fund issuance growth multiple is still at a relatively low level. Shows that investors are still relatively cautious in entering the market, and there has not been a situation where large-scale funds are entering the market through public offerings.
Picture release date: September 1, 2025
(IV) Category 4: Comparison of stock and bond valuations
8. ERP
ERP (Equity Risk Premium) is an important indicator to measure the attractiveness of the stock market relative to the bond market. The higher the indicator, the more advantage the stock has in comparison to the expected return of the bond. Huachuang Securities used the difference between the countdown of the price-to-earnings ratio of the Wind All A Index and the 10-year treasury bond yield as the basis for calculating ERP, and counted the change level of ERP in previous markets.
wind data shows that as of August 29, the downward trend of this round of ERP was 1.58%. Compared with the historical market, this downward range is still relatively low. For example, in the 2014-2015 market, ERP fell sharply by 4.97%; in the last three rounds of markets, the downward range was 2.41%, 0.73% and 1.62% respectively.
Picture release date: September 1, 2025
From the eight indicators, Huachuang Securities believes that the current ratio of market value to GDP, as well as the ratio of market value to residents' deposits, still has room for improvement. There is still room for upward movement in the turnover rate and the increase in congestion is a relatively high level. The drawdown risk is currently the lowest in previous markets, and subsequent fluctuations may increase. There is still room for upward for the issuance of margin financing and equity-oriented funds. Compared with the valuation of stocks and bonds, the relative advantages have declined, but they are still at a high level.
2. What stage is the current market?
Based on the analysis of these eight indicators, we can try to answer the first few questions raised?
First, is the market over?
From the eight major indicators, none of the major indicators have reached the market overheating stage in previous historical major market conditions. It may be too arbitrary to say that the market has ended after just a few days of adjustment.
CICC believes that the recent adjustment of the market is mainly due to the overheating market transactions since late August, and the significant concentration of funds in the TMT sector has led to excessive concentration of trading structure; on the other hand, important activities at the beginning of the month, expectations of the Federal Reserve's interest rate cuts, and other positive factors have been or are close to being realized, which have triggered a short-term decline in market risk appetite.
Because the market has no substantial negative news, the support is currently relatively solid. Therefore, in the short term, CICC believes that the index is likely to fluctuate narrowly, while the long-term upward trend has not changed.
Second, what stage is it in now
So, what stage is the market now?
After continuous rises, the market enters a short-term adjustment stage, which we call the "consolidation period". CICC has counted the market trends of the past 11 rounds of large-scale market trends and found that when the market usually rises too fast in the early stage, there will be some adjustments with a larger amplitude and a shorter time in the later stage; and when the market is slowly improving in the current period, the index pullback usually performs more moderately. Of course, the consolidation period will be longer, and the index shows a trend of volatile repair.
At the same time, West China Securities also believes that in the medium term, the driving force of this round of market has not changed, and the policies still provide strong support for "stabilizing the stock market". Medium- and long-term funds such as insurance funds and pensions are increasing their efforts to enter the market, and the potential incremental funds on the residential side are still relatively abundant. At the same time, the market's expectations of the Federal Reserve's interest rate cut are rising, which is also conducive to the strong RMB exchange rate and the inflow of foreign capital into Chinese assets.
Third, how long may the oscillation last?
Xixi Securities has counted the past three major-level market trends. From 2005-2007, 2008-2009, and 2014-2015, from the perspective of the CSI All Index, the maximum retracement range was in the range of 6%-21%, the maximum retracement average was -14%, and the retracement lasted 4 trading days to 28 trading days.
CITIC Construction Investment has counted the market trends of the index in the past 11 rounds of market conditions from 2007 to the present. When the current index rises more stable, the index retracement range is about 7%-9%, and the consolidation time is about 1-2 months.
Picture release date: September 7, 2025
Summary
By statistics and comparison of the eight major market indicators in the past large-level markets, we can see that it is too early to say that the market ends; and after the market continues to rise, it enters a "consolidation period" in a short time. The length and amplitude of the consolidation period are related to the previous rise speed and amplitude. This is a market normal and there is no need to be too pessimistic.
References:
1. Huachuang Securities: Top Ten Observation Indicators in the Bull Market Process, Zhang Yu and Lu Yinbo, Yi Yu, September 1, 2025
2. CICC: Market characteristics of the bull market consolidation period, Xia Fanjie and He Sheng, CICC Securities Research, September 7, 2025
3. West China Securities: The easing expectations have started again, and the main tone of slow bull in A-shares is still there. Li Lifeng and Zhang Haiyan, West China Strategic Team, Strategy Ji Lifeng and Industry Allocation Notes, September 7, 2025
Risk warning:
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