The recent downturn in China's stock market has left many investors feeling disheartened, particularly those who swiftly entered the fray during the National Day holidayOn October 9, the A-share market experienced a significant slump, with the Shanghai Composite Index closing at 3,258.86 points, marking a decline of 6.62%. Similarly, the Shenzhen Component Index fell by 8.15% to 10,557.81 points, while the ChiNext index, a benchmark for the country's growth enterprises, plummeted by 10.59%, closing at 2,280.10 pointsThis unexpected turn of events has sparked widespread speculation about the health of the bull market.

The abrupt shift from a vibrant market atmosphere to a steep drop has caught many off guardJust days prior, investors were celebrating what seemed like an unending upside, only to face a jarring reality checkThe momentum had built up quickly, leading many to ponder whether the anticipated bull market had reached its zenith.

To contextualize the situation, we must examine the underlying dynamics that have shaped the current market environment

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In the weeks leading up to the National Day holiday, a series of pivotal developments unfolded that influenced investor sentiment and market trajectories.

On September 20, the Federal Reserve announced a significant 50 basis point interest rate cut, signaling the end of its current tightening cycle and the beginning of a potentially new easing phaseFollowing this, on September 24, measures were introduced that included reducing both home loan rates and down payment ratios, along with the introduction of targeted monetary instruments to support the stock market, marking a historical first for such initiatives.

Furthermore, a crucial meeting on September 26 aimed at soothing the housing market proposed fortifying fiscal policies, aiming to stabilize the declining real estate sector—an announcement that exceeded market expectationsThese three significant actions collectively catalyzed a swift response from both A-shares and Hong Kong stocks, leading to dramatic rebounds in prices

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Investor confidence surged as domestic and foreign capital began to flow back into the market, resulting in record-breaking trading volumesThe first trading day after the holidays on October 8 saw A-shares reaching an astonishing trading value, with daily volumes escalating past 3 trillion yuan for the first time.

The interactions between these global and domestic factors generated a perfect storm of conditions favorable for market expansionThe Fed's decision improved the external funding environment for Chinese A-shares and bolstered foreign investor appetiteMoreover, the resultant easing conditions resonated positively within China's monetary and fiscal policy frameworks.

Given this backdrop, it is critical to analyze the current valuation levels within the A-share marketAccording to Wind data, the price-to-earnings ratio of the all A-share index stands at 19.55, which places it at the 43rd percentile historically—suggesting that today's market valuations are lower than those during 56% of historical periods

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Analyzing the price-to-book ratio, the index comes in at 1.68, which is positioned at the 20th percentile since inception, indicating a significant undervaluation occurring nearly 80% of the time historically.

Current perspectives from analysts, such as Huajin Securities, suggest that the rapid upswing in A-shares has not yet hit a peak, hence a continuation of positive momentum is expected in the near termThis optimism is underpinned by a lack of visible signs of policy tightening or reversalInstead, it seems likely that fiscal policies may gather further momentum particularly in light of the recent governmental discussions of bolstering support for economic sectors.

Moreover, the liquidity situation remains favorable, implying that money inflows into the equity market, particularly from retail investors and through margin lending, have not yet peakedIn fact, current trading volumes and turnover percentages remain comparatively low, reinforcing the notion that significant upside potential still exists without imminent market restrictions.

However, as we transition from an environment characterized by rapid valuation recovery to one where market behavior may become more selective, the focus is likely to shift towards identifying high-quality assets with robust core competitiveness

The rising tide may no longer lift all boats equally, but will rather favor those stocks that embody innovative qualities or 'new quality productive forces.', a term that effectively captures the transformative economic drivers in the current landscape.

These new productive forces pertain specifically to an advanced production capacity characterized by emissions of high technology, effective operations, and quality outputs—all aligning with contemporary developmental philosophiesSignificantly, the STAR Market (Science and Technology Innovation Board) is designed to provide support to burgeoning sectors and high-tech industries, offering clear visibility into companies with essential technological prowess and growth potential.

The STAR 100 Index exemplifies this trend, featuring a predominant share of industries involved in electronics, computing, communications, and manufacturing that cater to electric utilities and defense, highlighting how essential these sectors are for future industry aspirations

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