Eliza Wong
Unlocking China’s Market Cycles: The 5-Year Pattern Every Investor Should Know
What if you could predict Chinese equity market movements based on a simple numerical pattern? China Merchants Securities strategist Zhang Xia has identified a compelling 5-year cycle in China’s A-share market that correlates with year-end digits, suggesting we’re currently in the bull market’s second phase with 2-3 years of potential growth ahead. This pattern, backed by monetary policy cycles, economic reforms, and regulatory changes, provides a framework for understanding market behavior that has persisted since 1997.
The bull market’s second phase represents a critical juncture where investor psychology shifts from recovery to growth momentum. According to Zhang’s research, markets ending with digits 4 or 9 typically mark bottom formations, while years ending with 1 or 7 often signal market tops. This pattern aligns with China’s political-economic cycles and has profound implications for investment strategy in the coming years.
Key Market Insights
– Years ending with 4 or 9 consistently show market bottom formation with 85% historical accuracy
– The current cycle began in 2024 and typically lasts 2-3 years before reaching a peak
– Monetary policy and economic reforms consistently align with these cyclical patterns
– Eight key sectors represent the primary investment opportunities during this phase
The 5-Year Cycle: More Than Numerical Coincidence
Zhang Xia’s analysis reveals that China’s stock market has demonstrated a remarkably consistent 5-year cycle since 1997. The pattern shows that years ending with 4 or 9—including 1999, 2004, 2009, 2014, 2019, and 2024—consistently represent market bottom areas. Conversely, years ending with 1 or 7—2001, 2007, 2011, 2017, and 2021—typically mark market tops.
This pattern isn’t merely numerical coincidence but reflects deeper structural elements in China’s economic and policy landscape. The 5-year cycle corresponds with China’s political planning cycles and major policy announcements that significantly impact market directions. Understanding this pattern helps investors position themselves for the bull market’s second phase and beyond.
Policy Alignment and Market Impact
The cyclical pattern aligns perfectly with China’s policy announcement schedule. Major market reforms consistently emerge during years ending with 4 or 9, including the three iterations of the “国九条” (National Nine Articles) market reform policies in 2004, 2014, and 2024. Each announcement preceded significant market rallies as investor confidence improved following these substantial policy developments.
New market launches also follow this pattern, with the 中小企业板 (SME Board) launching in 2004, 创业板 (ChiNext) in 2009, 新三板 (New Third Board) in 2014, and 科创板 (STAR Market) in 2019. While 2024 didn’t introduce new boards, the September 24 monetary policy tools provided similar market support mechanisms.
Monetary Policy and Economic Indicators
The 5-year cycle extends beyond equity markets into monetary policy and economic indicators. Years ending with 4 or 9 typically represent interest rate bottoms following extended monetary easing periods. The M1 money supply growth rate consistently bottoms during these years before beginning recovery as economic activity increases following policy interventions.
Current indicators suggest we remain early in the cycle. M1 growth hasn’t yet reached its inflection point, suggesting the market remains far from its peak. This aligns with the bull market’s second phase characteristics, where monetary conditions support continued expansion before eventually tightening as the cycle matures.
Inflation Patterns and Economic Cycles
Price movements also follow the 5-year pattern, with bottoms occurring in 1999-2000, 2004-2005, 2009-2010, 2014-2015, 2019-2020, and now 2024-2025. Following these bottom periods, demand-side policies and supply-side structural reforms typically push price levels higher, peaking in the year before or during major political meetings.
The current anti-internalization policies (反内卷) may create supply contraction while the 十四五规划 (14th Five-Year Plan) implementation in 2025 could drive demand through major project initiations. Real estate market stabilization through urban renewal programs and reduced purchase restrictions further supports this inflationary trajectory.
The Bull Market’s Second Phase: Characteristics and Opportunities
We’ve now entered what Zhang Xia identifies as the bull market’s second phase, characterized by breaking through the “break-even resistance level” where previously underwater investors become profitable. This psychological barrier typically exists around the average cost basis of stocks and funds purchased during the previous bull market.
When markets surpass this level, investor behavior fundamentally changes. Rather than selling at break-even, investors increasingly adopt a “buy the dip” mentality that creates self-reinforcing price momentum. This transition occurred in June-July 2024 when the market surpassed its break-even resistance level, marking the official transition to the bull market’s second phase.
Incremental Capital Flows
The most compelling evidence for this phase transition appears in capital flow data. Household net deposits—calculated as deposit balances minus loan balances—reached an unprecedented 79 trillion yuan in June 2024 before declining to 77 trillion in July and August as funds moved into capital markets.
This capital migration primarily flows through two channels: private equity funds and individual margin trading. Private fund registrations hit post-2022 highs with management scale increasing by 300 billion yuan, while margin trading balances increased from 1.07 million yuan per account in June to 1.27 million yuan currently. These flows represent both high-net-worth individuals through private funds and risk-tolerant investors through margin trading.
Investment Strategy for the Current Phase
During the bull market’s second phase, investors typically focus on sectors with maximum growth potential rather than current valuations or short-term performance. These “theme” or “track” investments prioritize future growth over present fundamentals, particularly in emerging technological and innovative sectors.
Zhang identifies eight primary investment themes for the current cycle: artificial intelligence, humanoid robotics, solid-state batteries, semiconductor independence, controlled nuclear fusion, military trade (including commercial aerospace and satellite internet), new consumption, and innovative pharmaceuticals. These sectors represent where investor capital concentrates during this phase of the cycle.
Sector Rotation Timing
Many investors question whether to rotate from these high-growth sectors to undervalued cyclical stocks. Historical patterns suggest this rotation typically occurs in the year before or during major political meetings, making 2026 more likely than 2025 for this transition.
The rotation trigger usually comes from irreversible economic improvement and inflation growth, causing monetary tightening that disadvantages growth stocks while benefiting value and cyclical names. Until these economic conditions materialize, growth sectors likely maintain leadership despite valuation concerns.
Navigating Market Volatility
Even during bull markets, corrections and volatility remain inevitable. Investors should prepare strategies for managing these temporary setbacks while maintaining exposure to the overall upward trend. Zhang suggests three primary approaches for handling market fluctuations.
First, industry trend tracking focuses on identifying sectors with near-term catalysts, improving fundamentals, or accelerating adoption rates. Second, first-day limit-up strategies monitor which sectors see institutional buying through initial price limit movements. Third, core holding diversification across the eight major themes ensures participation regardless of which sector leads at any given time.
Risk Management Framework
Each approach carries different risk profiles and research requirements. Industry trend tracking demands deep sector knowledge, while first-day limit strategies require real-time market monitoring. The diversified core holdings approach offers simplicity but may deliver average rather than exceptional returns.
Investors should select strategies matching their research capabilities and risk tolerance. The critical factor remains maintaining exposure during the bull market’s second phase while managing position sizes to withstand inevitable corrections.
Strategic Outlook and Implementation
The current market environment offers exceptional opportunity for prepared investors. The 5-year cycle pattern suggests we remain in the early stages of a multi-year advance, with the bull market’s second phase typically representing the strongest performance period.
Investors should focus on the eight identified growth themes while monitoring economic indicators for signs of the eventual rotation to cyclical stocks. The M1 growth rate, household deposit flows, and policy announcements provide the most reliable signals for timing this transition.
Historical patterns suggest the current bull market could extend into 2026-2027 before reaching its peak, providing substantial opportunity for well-positioned investors. Those understanding the cyclical nature of Chinese markets can leverage this knowledge for superior risk-adjusted returns.
Now is the time to develop or refine your investment thesis around these eight growth sectors while maintaining vigilance for economic indicators that signal phase transitions. The bull market’s second phase represents the optimal period for growth investing, but requires disciplined risk management and ongoing market assessment.
