A Complete Guide to Investing in Mainland Stocks: How Taiwanese Investors Can Seize New Opportunities in Chinese A-shares

Why Is the Mainland Stock Market So Strong This Year?

Remember a year ago when everyone was criticizing the “Chinese stock market has no investment value”? The recent reversal came unexpectedly. Since September last year, the mainland stock market has been on a rally, with the Shanghai Composite Index rebounding from its lows and rising nearly 50% to date, recently surpassing 3950 points, hitting a ten-year high.

The trigger for this rally was on September 24, 2024. On that day, the People’s Bank of China governor and other senior financial officials held a rare joint press conference, announcing a series of measures to stabilize the market. Since then, capital has kept flowing in.

Most importantly, the Chinese government now treats the mainland stock market as a long-term wealth reserve platform, requiring insurance companies and state funds to significantly increase their stock allocations. This policy-driven momentum is substantial and a key reason attracting global funds.

Why Are Major International Banks Optimistic About Mainland Stocks?

Top investment banks like Goldman Sachs, JPMorgan Chase, and UBS have recently issued optimistic reports. They generally believe that China’s stock market has entered a more stable upward phase.

Goldman Sachs even predicts that by the end of 2027, major indices could rise by about 30%. Their core reasons include:

1. Gradual realization of AI technology dividends – technological innovation boosts corporate profit models, and related investment benefits are beginning to show
2. “Anti-involution” policies open up profit margins – companies have new growth opportunities
3. Continued competitiveness of manufacturing exports – China’s share of the global market for goods is still expanding

With these three factors stacking up, the overall market’s earnings per share growth rate is expected to rise to around 12%.

Meanwhile, leading companies in healthcare, finance, entertainment, and other sectors are still valued within historically reasonable ranges, with considerable upside potential. Compared globally, the valuation discount of Chinese stocks relative to US stocks also offers long-term attractiveness.

But Be Cautious: Most of the Gains Come from Valuation Expansion

A warning is necessary here. Although major institutions are optimistic, the reality still contains uncertainties.

The core issue is: this rally is mainly driven by valuation recovery, not genuine improvement in fundamentals.

In fact, analysts have been continuously downward revising their earnings forecasts for mainland stocks in 2025 and 2026. The forward P/E ratio of the MSCI China Index has reached 12.8x, above the ten-year average of 11x.

While this valuation remains significantly lower than the 22x P/E of the tech-heavy S&P 500, the underlying issues behind the gap include: Chinese tech and internet companies have relatively low profit margins, regulatory policies are still uncertain, and industry competition is fiercer.

Therefore, the biggest risk is: if macroeconomic recovery falls short of expectations, and corporate profits cannot support current valuations, the market may experience a correction.

The Core Structure of the Mainland Stock Market: Key Indices and Sectors You Must Know

To invest in mainland stocks, you first need to understand the market structure.

The most commonly heard Shanghai Composite Index is actually non-tradable; it’s just a barometer of market sentiment. The tradable indices are these four and their corresponding ETFs:

• CSI 300 Index – Focused on large-cap stocks, it’s the main reference for global investors, with constituent stocks being key market targets
• CSI 500 Index – Focused on mid-cap stocks
• CSI 1000 Index – Concentration of small-cap stocks
• SSE 50 Index – Super-large-cap stocks

Among these, the most important is CSI 300, as it is not only the most watched by domestic funds but also the preferred entry point for overseas institutions into A-shares.

In terms of sectors, the mainland stock market is mainly driven by finance and manufacturing:

The largest sector by market value is banking (RMB 15.8 trillion), followed by electronics (RMB 14.2 trillion), along with non-bank financials, power equipment, and biotech. This indicates a high correlation between the market and financial policies, as well as manufacturing sector prosperity.

History Tells Us: Why Is the Mainland Stock Market So Volatile and Dynamic?

The mainland stock market has been around for just over thirty years but has experienced several dramatic bull and bear cycles. Unlike the long slow bull markets of the US, the characteristics of the mainland market are “short bull, long bear, with violent surges and crashes.”

Over the past 15 years, the market can be divided into several phases:

2010-2014 – After the four-trillion-yuan stimulus, issues like inflation and overcapacity emerged, monetary policy tightened, and the market remained sluggish.

2015-2016 – Deleveraging triggered liquidity crises, with “10,000 stocks hitting limit down,” circuit breakers failing, and a rapid plunge into a bear market.

September 2022 - September 2024 – Economic recovery fell short of expectations, policies provided support, but the market remained volatile and consolidating.

The three main engines driving the mainland stock market are:

1. Liquidity – The most direct and sensitive factor. RRR cuts, interest rate reductions, credit easing → bull markets; rate hikes, deleveraging, credit tightening → bear markets end.
2. Policies – “Policy-driven markets” are a hallmark of Chinese stocks. Major positive policies and reforms often trigger a new bull run.
3. Fundamentals – Corporate earnings growth is the foundation of a healthy bull market.

How Can Taiwanese Investors Enter Mainland Stocks?

There are two main ways for Taiwanese investors to access mainland stocks:

Domestic channels (via Qualified Domestic Institutional Investor - QDII) Through Taiwanese brokers like Yuanta Securities, KGI Securities, Yongfeng Securities, etc. The advantage is familiarity with the process; the downside is relatively higher fees.

Overseas channels (via foreign brokers) Open an overseas securities account directly, such as with Futu Securities, Tiger Brokers, or US-based brokers. The benefit is more choices and lower costs.

When choosing a broker, key factors include: platform legality and strength, ease of fund deposits, completeness of trading products, operational smoothness, and Chinese language support.

Another approach is investing in mainland companies listed in Hong Kong and the US, such as Tencent (0700.HK), Alibaba (9988.HK). Using regulated platforms like Mitrade, supervised by the Australian Securities and Investments Commission (ASIC), allows commission-free, low-spread trading, with 24/7 online access.

The Most Worthy Mainland Stocks to Watch Now

Based on market capitalization, industry position, and profitability, these companies are particularly representative:

Cambricon (Chip Industry) A leading AI chip designer in China, with strong technological scarcity, in a high-growth phase, ROE of 25.21%, attracting continuous market attention.

CATL (Contemporary Amperex Technology Co. Limited) (Power Lithium Batteries) The global leader in batteries, backed by the global energy transition and carbon neutrality trends, with clear industry development direction, ROE of 17.76%.

Bank of Ningbo (Banking Sector) Unique governance and talent structure create a moat; they precisely serve high-value clients in specific regions, ROE 6.9%.

Hengrui Medicine (Pharmaceutical Innovation) Strong R&D capabilities, scarce and hard to replace in China’s pharma upgrade, ROE 9.42%.

China Mobile (Telecom Services) Monopoly-like core business provides stable cash flow and high dividends, ROE 8.3%.

Final Advice

The opportunity and risk of entering mainland stocks now coexist. The opportunity lies in corporate earnings improvement and valuation recovery for long-term allocation; the risk is that if macroeconomic recovery underperforms, current valuations may not be sustainable.

The most prudent approach is:

• Start with index allocation (CSI 300 is the safest)
• Focus on the three main drivers: policy, liquidity, and fundamentals
• Maintain awareness of risks
• Use a phased approach rather than full allocation at once

The long-term potential of the mainland stock market is significant, but pacing and risk management are equally crucial.