Recently, I noticed a quite interesting phenomenon. The mainland stock market, which many people have been bearish on, has actually started to perform well since the second half of last year. The Shanghai Composite Index has rebounded from its lows with an increase of nearly 50%. The logic behind this rally is worth taking a closer look at.

First, let's talk about the composition of the mainland stock market itself. If you want to participate in the mainland stock market, you need to understand a few key indices. The Shanghai Composite Index is the most well-known, but it is actually non-tradable; the ones that can be traded are the CSI 300, CSI 500, CSI 1000, and the SSE 50. Among these, the CSI 300 is the most closely watched, serving as the main reference for mainland capital and the primary gateway for overseas investors to invest in A-shares. The differences among these indices lie in the size of the selected companies: the SSE 50 corresponds to large-cap stocks, while the CSI 1000 corresponds to small-cap stocks.

From an industry perspective, the mainland stock market is mainly dominated by manufacturing sectors such as finance, electronics, pharmaceuticals, food, and chemicals. Banks, electronics, and non-bank financials have the largest market caps, and the entire market is highly correlated with financial policies and manufacturing sector prosperity. This structural characteristic determines the investment logic of the mainland stock market.

Regarding the latest market trends, in September last year, the central bank governor and other financial leaders held a rare joint press conference, announcing a series of supportive measures, which marked the starting point of this rally. Since then, the Shanghai Composite Index has been rising steadily, reaching a ten-year high. The government explicitly stated its goal to develop the mainland stock market into a wealth reserve platform similar to the US stock market, even urging insurance companies and state funds to increase their stock allocations. This policy shift is very significant.

From a historical perspective, the characteristic of the mainland stock market is "short bull, long bear." This market clearly demonstrates the traits of a "policy-driven" and "fund-driven" market. Market cycles always revolve around policy changes, liquidity conditions, and fundamental strength. Liquidity is the most direct driving factor; loose monetary policy often spurs a bull market, while deleveraging and credit tightening tend to end it. Major policy benefits, such as reforms in the capital market and the implementation of registration systems, can also trigger a wave of rallies. Of course, fundamentals are the foundation of sustainable bull markets.

Recently, international major banks have shown a noticeably more optimistic attitude toward the mainland stock market. Goldman Sachs, JPMorgan Chase, UBS, and others have issued positive signals, believing that the mainland stock market has entered a more sustainable upward trajectory. Goldman Sachs forecasts that by the end of 2027, the main indices could rise by about 30%, and JPMorgan Chase is optimistic about the future performance of the CSI 300. These institutions generally believe that a combination of factors—such as corporate earnings recovery, valuation adjustments, AI technology applications, and anti-involution policies—are supporting the long-term allocation value of the mainland stock market.

However, risks should also be acknowledged. Although recent stock gains are driven by valuation expansion, the improvement in fundamentals still needs to be observed. If the current macroeconomic recovery falls short of expectations, it could lead to corporate profits being unable to support current valuations, resulting in a correction. The forward P/E ratio of the MSCI China Index has already exceeded its ten-year average, which warrants caution.

For Taiwanese investors, there are mainly two channels to invest in the mainland stock market. One is through a custodian bank, with brokers like Yuanta, KGI, and Fubon providing services. The other is via overseas brokers; platforms like Futu and Tiger Securities also allow participation. Besides direct investment in A-shares, many high-quality mainland companies are listed in Hong Kong and the US, such as Tencent and Alibaba, which are also worth paying attention to. When choosing a broker, factors like platform legality, ease of fund deposits, product variety, trading smoothness, and customer support should be considered.

From an investment perspective, the long-term allocation value of the mainland stock market is indeed increasing. Earnings improvement and valuation recovery are the core supports, but this depends on the macroeconomic continued stable recovery. Interested investors can start by understanding the basic structure of the mainland stock market, gradually learn about different industries and leading companies’ investment logic, and then develop their own investment strategies based on their risk tolerance.