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Institutional Behavior Phenomena

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Understanding Institutional Action Patterns in Bear Markets

Against the backdrop of China’s economic slowdown (GDP growth 4.5-5%) and liquidity tightening in 2025, institutional investors have shown unique behavioral characteristics. By observing these phenomena, individual investors can better understand market dynamics and develop more effective investment strategies.

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Phenomenon 1: Conservative Defense, Maintaining High Cash Proportion

In economic downturn cycles, institutional investors typically adopt defensive strategies, mainly characterized by:
  • Maintaining 50-60% cash allocation, much higher than the 20-30% in normal market environments
  • Prioritizing profit-taking, even if profits do not reach expected targets
  • Significantly reducing allocations to high-risk assets (such as technology stocks), shifting to low-volatility sectors
  • Increasing holdings of safe-haven assets like gold ETFs
Bear markets have high volatility. Individual investors should be cautious about chasing rising prices, control positions, and avoid excessive trading.
Data Observation: As of June 2025, the average cash proportion of China’s top 50 public funds reached 56.8%, a new high in nearly 3 years.

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Insights from Institutional Behavior for Individual Investors

By analyzing the behavioral patterns of institutional investors, individual investors can gain the following insights:
  1. Contrarian thinking: When institutions collectively become bearish, it may signal that the market is approaching a bottom
  2. Patience: Remain calm during institution-created volatility, wait for clear trends to form
  3. Attention to details: Details such as trading volume and position structure changes often reflect institutional intentions better than prices
  4. Learning risk control: Draw lessons from institutional risk control methods, such as setting stop-losses and diversifying investments

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Action Steps

1

Observe Institutional Behavior

Record abnormal market volatility daily, analyze possible institutional behaviors behind them
2

Track Capital Flows

Use capital flow indicators to monitor the inflow and outflow of institutional funds
3

Develop Response Strategies

Adjust your investment strategies based on observed institutional behaviors
4

Validate and Optimize

Validate strategy effectiveness with small positions, continuously optimize and improve
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