After extreme differentiation, will a rolling bull market appear?

The structural divergence of the current A-share bull market has reached a historical extreme, but the continuous improvement of fundamentals and the ongoing inflow of incremental funds are creating conditions for market rotation.

In this bull market that started on September 24, 2024, technology sectors represented by communications and electronics stand out, while traditional value sectors remain sluggish. The divergence has intensified further since March 23, 2026.

The Guosen Securities strategy team pointed out in their latest research report that the degree of divergence in both industries and individual stocks has approached historical highs, and concentration of trading is also reaching extreme levels. Whether rotation will occur after the divergence depends on if fundamentals improvement can spread from the new economy to the old economy, and whether incremental funds can continue to enter the market.

Their assessment is: both conditions are currently being gradually fulfilled, and this bull market is expected to see a rotation similar to the 2019-2021 period, potentially developing along the path of tech hardware → AI applications, intelligent manufacturing, innovative drugs → real estate, liquor, and brokers, in that order.

Divergence Approaches Historical Extremes

In terms of gains and losses, the divergence among industries in this bull market has reached historical highs. As of June 5, this year the communications sector is up 62.0%, electronics up 44.7%, while consumer services are down 9.8%, and non-bank finance down 18.1%, showing an extremely wide gap.

Measured by the “average increase of the top three minus the bottom three” for SW primary industries, this year’s reading is second only to 2015, much higher than levels during the 2019-2021 bull market. At the individual stock level, using the difference in the rolling one-year median returns between the top and bottom 5% of stocks, divergence currently stands at 353.5%, breaking above two standard deviations from the mean; similar readings only occurred historically in April-June 2015, October 2021, and August-September 2025.

Trading structure is also in an extreme state. The weekly turnover share of tech sectors has reached 46%, close to historical extremes; even stripping out market cap effects, tech sectors’ trading volume share exceeds their free-float market cap share by 14 percentage points, at the 90th percentile since 2010.

On the stock level, the concentration of trading among the top 5% of stocks has reached 48%, surpassing the historical extreme of 45%. Guosen Securities pointed out that historically, whenever this indicator broke through 45%, it often signaled group trades becoming unstable or even a market reversal, with similar precedents in December 2014, January 2018, and February 2021.

Historical Review: Rotation Depends on Fundamentals and Funds

Guosen Securities summarized three typical bull markets in A-share history and found that whether rotation occurs after divergence depends essentially on the breadth of fundamentals improvement and the scale of incremental funds.

The bull markets from December 2012 to June 2015, and from January 2019 to December 2021, both saw significant rotation in their later stages. The first went through a cycle of growth leading, value catching up, and comprehensive gains; the latter showed TMT, consumption, cyclical, and new energy sectors peaking in sequence.

The common feature of both bull markets: corporate profits ultimately improved broadly, accompanied by large-scale fund inflows. From 2014 to 2015, net inflows reached about 5.9 trillion yuan; from 2019 to 2021, cumulative net inflows were nearly 3 trillion yuan.

By contrast, the structural bull market from February 2016 to January 2018 never saw rotation. At that time, fundamentals improvement was highly concentrated, mainly benefiting from supply-side structural reforms increasing industry concentration; core assets represented by the "Maotai Index" saw significant profit growth, while ChiNext fundamentals kept declining. Funds didn’t help either: in 2016, net outflows were 1.5553 trillion yuan; in 2017, only a minor net inflow of 102.9 billion yuan. Average daily turnover for all A-shares dropped from 527.6 billion to 466.7 billion yuan in the latter part of the bull market.

Current Conditions: Fundamentals Spreading, Funds Entering

Guosen Securities believes that this bull market is meeting the two necessary preconditions for rotation.

In terms of fundamentals, improvement is spreading from the new economy to the old. Tech sector net profit growth turned positive in Q1 2024, reaching 30% in Q1 2026, which underpinned the tech sector's leadership over the past year. All A-share net profit year-on-year growth turned positive in Q1 2025, reaching 6.8% in Q1 2026; cyclical sectors’ net profit growth also turned positive to 20% in Q1 2026. Price-wise, March PPI YOY turned positive to 0.5%, ending 41 consecutive months of decline, with April PPI YOY up further to 2.8%. Guosen Securities predicts that all A-shares' net profit YOY growth could reach 10% in 2026.

On the funding side, the breadth of incremental funds entering the market is expanding. Since the start of the bull market on September 24, 2024, insurers and financing funds were the first to enter; net increase reached 553.1 billion yuan for insurers and 476.8 billion yuan for financing funds from Q4 2024 to Q1 2025. After Q3 2025, private equity and other active funds entered, with leveraged funds inflows totaling 686 billion yuan. Entering 2026, more types of funds started coming in: active equity fund assets rose from 4.5 million units in December 2025 to 4.7 million in end-April 2026; year-to-date, margin trading balance increased by a net 390.8 billion yuan.

Rotation Path Simulation: Reference 2019-2021

Guosen Securities judges that the probability of extreme style swings like Q4 2014 is low in this bull market. More likely, it will resemble the gradual diffusion and rotation seen in 2019-2021.

By reference to the rhythm of the 2019-2021 bull market—TMT, consumption, cyclical, new energy peaking in turn—Guosen Securities projects the rotation path for this bull market as: tech hardware → AI applications, intelligent manufacturing, innovative drugs → real estate, liquor, brokers.

Within the growth sector, AI applications, intelligent manufacturing, and innovative drugs are seen as most worthy of attention. Drawing from the pattern of tech rallies 2012-2015 spreading from hardware to software and content, this time AI may extend from hardware to applications. Smart driving, robotics and other intelligent manufacturing fields combine AI applications and Chinese manufacturing advantages; according to Markets and Markets data cited by Zhongshang Industry Research Institute, the global humanoid robot market is expected to grow at a compound annual rate of 50% from 2024 to 2028. For innovative drugs, in Q1 2026 China's pharma BD deals accounted for 70% of the global total, with export momentum continuing.

Within value sectors, real estate, liquor and brokers are at historically low valuations and fund holdings, with room for rebound. This year, liquor spot prices stabilized and rose, and prices for existing homes in tier-one cities have achieved positive month-on-month growth for two consecutive months. Broker sector net profit grew by 48.1% YOY in Q1 2025 and 22.0% in Q1 2026; if average turnover in bull market phase three stays above 2.5 trillion yuan, brokers’ profits are set to benefit further.

Risk Warning and DisclaimerMarkets involve risk, investment requires caution. This article does not constitute personal investment advice and does not take into account individual users' special investment objectives, financial situations, or needs. Users should consider whether any opinions, views, or conclusions herein suit their specific circumstances. Investing accordingly is at your own risk.