Introduction to Mainland China Stock Investment: How Can Taiwanese People Tap into New Opportunities in China's Stock Market?

Why Invest in A-shares Now?

Once dismissed by the market, China’s stock market has performed a spectacular turnaround over the past year. Starting from the policy catalysts in September 2024, A-shares have experienced their most vigorous rebound in nearly a decade — the Shanghai Composite Index has risen to 3,950 points, nearly 50% higher from the rebound starting point. What are the driving forces behind this rally? For Taiwanese investors, is now the right time to get involved?

Major international investment banks are optimistic, with Goldman Sachs, JPMorgan Chase, UBS, and others continuously releasing reports predicting a further 20-30% rise in A-shares. They point out that a combination of factors such as a rebound in corporate profitability, restructuring of valuation systems, and AI technology applications are supporting this trend. However, there are also concerns — the current gains are more driven by valuation expansion rather than substantial improvements in fundamentals, so risks and opportunities coexist.

Understanding A-shares: Market Structure You Must Know

Before investing, you need to understand the “skeleton” of A-shares. China’s stock market is mainly measured by five major indices, with the CSI 300 Index being the most critical benchmark, serving as the focus for domestic capital and the primary reference for overseas investors deploying A-shares.

In addition, the SSE 50 Index represents large-cap blue chips, while the CSI 500 Index and CSI 1000 Index track mid-cap and small-cap stocks respectively. Only these four indices are directly tradable, with corresponding ETFs and derivative contracts, making them essential for strategy formulation. In comparison, the SSE Composite Index is the most well-known but cannot be traded directly; it merely reflects market sentiment.

From an industry perspective, the distribution of A-shares is centered around finance and manufacturing. The largest market caps are in banking, electronics, non-bank financials, power equipment, and biomedicine, with banking alone reaching 1.587 trillion RMB. This characteristic indicates a high correlation between A-shares and financial policies and manufacturing sector prosperity.

The Past Year of A-shares: From Bottom to Rebound Turning Point

On September 24, 2024, an unprecedented joint press conference by the central bank opened up market imagination. A series of measures to support the economy and stock market were introduced, marking a fundamental shift in policy stance. The Chinese government explicitly stated its goal to develop the stock market into a wealth reserve platform similar to the US stock market, as reflected in directives urging insurance companies and mutual funds to increase their stock allocations.

This policy shift was significant. Before this bull market, A-shares experienced a prolonged bottoming phase — from the pandemic in 2022 to mid-2024, despite continuous policy support, the market remained clouded by pessimism. Weak market confidence, slower-than-expected economic recovery, and insufficient institutional allocation all contributed to persistent low stock prices.

The breakthrough came from the determination of policies and improved liquidity. Looking back, this turning point was not accidental but the inevitable result of long-term contradictions reaching a tipping point and policy authorities changing expectations.

Historical Lessons of A-shares: The Cycle of “Policy Market”

To predict future trends, understanding the historical temperament of A-shares is essential. Compared to the long-term slow bull run of US stocks, A-shares exhibit a typical cycle of “short bull, long bear, skyrocket / surge, crash.” Since their establishment in 1990, they have experienced multiple dramatic transformations.

Long-term market forces are dominated by three main factors: first, liquidity-driven factors — the most sensitive short-term element. Central bank reserve ratio cuts, interest rate reductions, and credit easing can trigger a bull market, while tightening policies are market enders; second, policy and institutional drivers — A-shares are inherently a “policy market,” with major reforms like the split-share structure reform and registration system implementation having previously sparked rallies; third, fundamentals — the core guarantee for sustained bull markets.

The past 15 years’ four phases clearly demonstrate this pattern: the recession after the 2010-2014 stimulus of four trillion yuan; the liquidity crisis triggered by deleveraging in 2015-2016; the oscillation and recovery period from 2017-2021; and the bottoming phase from 2022-2024. Each turning point reflects a reconfiguration of these three forces.

Valuation Repair and Risk Warnings: Is the Future Really Optimistic?

International institutions’ optimistic outlook has its basis. Goldman Sachs highlights three long-term supports: AI technology reshaping corporate profits, “anti-involution” policies creating new profit space for companies, and manufacturing export strategies demonstrating sustained competitiveness. These factors could boost EPS growth to around 12%. JPMorgan Chase emphasizes that leading companies in healthcare, finance, and entertainment still have valuations within a reasonable historical range, with ample room for growth.

However, a sober view reveals a key hidden risk: the current rally is more driven by valuation expansion than fundamental improvement. The MSCI China Index’s forward P/E ratio has reached 12.8x, above its 11x ten-year average. Although still discounted compared to the S&P 500’s 22x, FactSet’s earnings forecasts for A-shares in 2025-2026 are still being downwardly revised.

What does this imply? It suggests that if macroeconomic recovery does not meet expectations or corporate profits cannot support current valuations, the market faces correction risks. The current prosperity is driven by policy and capital-led valuation restructuring, but for it to become a sustainable bull market, substantial fundamental improvements are necessary.

How Can Taiwanese Investors Invest in A-shares?

Taiwanese investors mainly have two routes into the A-shares market: domestic channels (CFA trust) and foreign channels (overseas brokers).

For CFA trust, Yuanta Securities, KGI Securities, and Fubon Securities offer relevant services. This method’s advantage lies in familiarity and ease of operation. Overseas brokers like Futu Securities and Tiger Brokers provide more direct A-shares trading, sometimes with more competitive fees.

When choosing a broker, consider platform strength and compliance, ease of fund deposits, variety of tradable products, operational smoothness, and customer support. For Taiwanese investors, Chinese-language support is a plus.

It’s worth noting that many high-quality Chinese companies choose to list in Hong Kong or the US, such as Tencent(0700.HK), Alibaba(9988.HK), etc. These H-shares and US-listed Chinese companies are also worth attention, and in some cases, valuations may be even more attractive.

Five Selected A-shares: Key Industry Layout

Based on market capitalization, industry prospects, and profitability(ROE), we have selected five representative companies as investment references:

Cambricon (chips industry, ROE 25.21%) — a leading Chinese AI chips designer with scarce technology advantages, positioned in a booming industry with long-term potential.

Contemporary Amperex Technology (power lithium batteries, ROE 17.76%) — the global leader in power batteries, benefiting from the global energy transition and carbon neutrality trends, with industry outlook highly certain.

Ningbo Bank (banking, ROE 6.9%) — well-governed, with strong talent advantages, focusing on high-value customers in specific regions, with defensive qualities.

Hengrui Medicine (biomedicine, ROE 9.42%) — continuous R&D innovation, with scarce value in the wave of China’s pharmaceutical industry upgrading.

China Mobile (telecommunications services, ROE 8.3%) — a monopoly business providing stable cash flow and safety margins, with high dividend payout, offering ongoing cash income to shareholders.

Summary: Cold Reflection on A-shares Investment

A-shares are indeed at an important turning point. Expectations of improved corporate profitability, valuation repair space, and clear policy support all underpin long-term allocation value. However, it is also crucial to recognize that current gains are largely driven by valuation expansion, and sustained market performance depends on continuous fundamental improvement.

For Taiwanese investors, investing in A-shares requires both recognizing opportunities and managing risks. Choosing reputable brokers, diversifying investments, and regularly reviewing fundamental changes are necessary prudent measures. The story of A-shares is still unfolding, but every investor should participate with a clear-headed approach.