Preface

The Chinese stock markets have shown remarkable growth entering the Year of the Snake. Notable events, such as the surge in DeepSeek-related concepts and the success of 'Nezha' at the box office, have brought about an optimistic buying atmosphere. These events have significantly enhanced the profit-making potential for investors. From the start of the Year of the Snake (February 5th), the Shanghai Composite Index increased by 2.96%, and the Shenzhen Component Index went up by 5.84%. The ChiNext Index saw a 7.34% rise, while the Hang Seng Index soared by 11.64% and the Hang Seng Tech Index by 16.69%.

Lazy bag

Critical insights reveal the stock market's growing profit potentials but highlight risk factors like emotional biases and trading costs hampering investor gains.

Main Body

The stock markets in China and Hong Kong have witnessed unprecedented growth with the onset of the Year of the Snake. With major contributions from exciting developments in sectors such as DeepSeek technology and the entertainment industry's box office hits, the investor confidence surged, invigorating market dynamics. Notably, statistics indicate the Shanghai Composite Index's increase of 2.96%, spanning the period from February 5 onwards, alongside more substantial gains in the Shenzhen Component and the tech-focused ChiNext Indices, which rose by 5.84% and 7.34%, respectively.

The performance of the Hong Kong stock market reflects a similar upward trajectory. Starting from February 3, the Hang Seng Index and Hang Seng Tech Index jumped significantly, by 11.64% and 16.69%. These indices echo the vibrancy of a market filled with promising growth prospects.

Despite robust growth figures, the stock market remains a battleground of mixed results for investors. Warren Buffett encapsulated this phenomenon through his '4E' principle, highlighting the dual adversities of Expense and Emotion as formidable challenges facing Equity investors.

Historical data reflect a consistent benchmark of a 9% annualized return from the corporate sphere, both in the U.S. and China. A closer examination of A-shares indicates a 7.4-fold profit increase over two decades, translating to an annualized increase of 10.56%. Meanwhile, such returns are offset by the high turnover — up to tenfold each year for some popular sectors — severely eroding investor profitability.

Focusing on the economic impact of trading costs stresses the imperative of cost vigilance amongst investors. The overall profit growth belies the substantial chunk redirected to cover trading expenses, reducing net gains.From a psychological standpoint, emotional disturbance in investing further aggravates returned outcomes. Richard Thaler's philosophy underlines that investor outcomes often fall short due to inadequate timing. An environment driven by greed, excitement, and irrational exuberance inflates risk without a commensurate return on investment, as exemplified by tumultuous periods such as the internet bubble burst.

Drawing on historical parallels, A-share markets resemble the overheated investments from 2007's bull market, where securities, despite formidable fundamentals, reached peak valuations, requiring considerable time for evaluation normalization.

Key Insights Table