Review of the 2025 Shanghai Composite Index: Can It Start a Healthy Bull Above 4000 Points?

Image Source: unsplash

The market welcomed a landmark moment in 2025. On October 28, China’s benchmark stock index, the Shanghai Composite Index, successfully broke through and stabilized above the 4000-point mark, marking the market entering a new phase.

Market investors are generally concerned: Is this breakthrough a short-lived frenzy, or the true start of a “healthy bull” market?

This article aims to provide an in-depth review of the market logic in 2025 and explore the trend of the rally above 4000 points.

Key Points

• The Shanghai Composite Index broke through 4000 points in 2025. This is the joint result of macroeconomic, policy, and market liquidity drivers.
• This rise is a “healthy bull.” It has a slower pace, driven by corporate earnings growth rather than valuation bubbles.
• Technological innovation and advanced manufacturing are the market main themes. The government strongly supports these areas, making them key for investment.
• Investors should adopt a “core-satellite” strategy. Allocate most funds to main themes, and a small portion to capture rotation opportunities.
• The market is expected to continue rising in 2026. Investors need to watch risks, but the index is projected to move toward 4500 points.

Review of the Core Drivers Behind the 4000-Point Breakthrough

Image Source: pexels

The Shanghai Composite Index standing above 4000 points in 2025 is not an accidental event achieved overnight. This breakthrough is the result of resonance among macroeconomic, policy orientation, market liquidity, and technical patterns. Reviewing the market pulse throughout the year clearly reveals three core drivers.

Dual-Wheel Drive of Macro Economy and Policy

Fundamentals are the cornerstone determining long-term market trends. In 2025, the Chinese economy demonstrated strong resilience. Annual GDP growth was stable, and the Consumer Price Index (CPI) remained in a moderate range, providing a stable macroeconomic environment for the capital market. The repair of corporate profitability was particularly key; according to forecasts, A-share listed companies achieved approximately 6% net profit growth for the full year of 2025, providing the most solid performance support for the index’s upward movement.

The guiding role of policy was fully embodied in 2025. The key July meeting released clear positive signals, effectively boosting market confidence. More importantly, the precise implementation of industrial policies injected new momentum for structural rallies into the market.

The Chinese government vigorously promotes technological self-sufficiency, especially in key fields like semiconductors and artificial intelligence. This strategic direction became the investment main theme throughout the year.

A new government directive requires nationally funded data centers to fully adopt domestic artificial intelligence chips, aiming to break dependence on foreign technology. This policy directly catalyzed rallies in related sectors:

• Strengthening of Domestic Chip Manufacturers: Policy support accelerates technological innovation and market share expansion.
• Technology Sector Leading the Market: The CSI Semiconductor Industry Index once surged 4.6% in a single day, with leading companies like SMIC and Cambricon Technology showing strong stock price performance.
• Heating Up of AI Theme: The CSI Artificial Intelligence Sector Index and Information Technology Sector Index rose in tandem, with the market generally believing technological self-reliance is an irreversible long-term trend.

Market Liquidity Providing Strong Support

Ample liquidity is important “fuel” for bull market rallies. In 2025, the market’s capital side remained generally loose. From broad money supply (M2) data, the market did not lack funds.

Although monthly data showed slight fluctuations, M2 total grew steadily from 318.52 trillion at the beginning of the year to 335.13 trillion in October, with year-over-year growth exceeding 8%, providing a solid liquidity foundation for the market.

Additionally, investor entry willingness significantly strengthened. At the end of 2025, margin financing balances in the Shanghai stock market hit historical highs, indicating leveraged funds actively entering the market and significantly elevated market risk appetite, providing additional momentum for the Shanghai Composite Index’s rise.

Technical Signals of the Shanghai Composite Index

From a technical analysis perspective, the Shanghai Composite Index’s trend in 2025 is a textbook “bottoming-breakthrough” rally.

At the beginning of the year, the market was in a typical bottoming phase. The index repeatedly oscillated above the 60-day moving average and below the 30-day moving average, with intense battles between bulls and bears, accumulating sufficient momentum for subsequent rises. As the market gradually entered the right-side upward range, the index began steadily challenging and breaking through a series of key technical levels.

During the upward breakthrough, the index successfully stabilized above multiple important Fibonacci retracement levels and previous resistance points, showing a strong upward trend.

Ultimately, on October 28, the Shanghai Composite Index broke through the 4000-point integer barrier with volume, confirming the start of a bull market pattern technically. This series of clear technical signals provided investors with definitive trend judgment basis.

Characteristics and Main Logic of a “Healthy Bull”

Image Source: unsplash

The Shanghai Composite Index standing above 4000 points is not only a breakthrough in points but also reveals the distinctly different internal characteristics of this rally from previous ones. The market is no longer a broad “water bull” or “mad bull” with universal rises and falls but shows distinct “healthy bull” traits, with clear main logic behind it.

Rhythm Characteristics of Slow Bull and Structural Bull

The most significant feature of this rally is “slow” and “structural.” It is completely different from the rapid pull-up “mad bull” rally in 2015. The market rise in 2025 was accompanied by repeated oscillations and consolidations, presenting a stable “advance two, retreat one” rhythm. This trend, although testing investor patience, also laid the foundation for the market’s long-term healthy development.

Valuation levels are key scales for judging market health.

Data shows that as of September 2025, the average price-to-earnings ratio of the A-share market was only 14.24 times.

This value is in a historically relatively reasonable range, indicating the market’s rise is more driven by corporate earnings growth rather than pure valuation bubbles. This strongly supports the judgment that this rally is a “healthy bull” rather than a “bubble bull.” Investors need to adapt to this slow bull rhythm, abandon fantasies of overnight riches, and focus on structural opportunities.

Core Main Theme of Technology and Advanced Manufacturing

If “slow” is the rhythm of this bull market, then technological innovation and advanced manufacturing are its strongest engines. Continuous policy reinforcement and formation of industry trends jointly established this core main theme throughout the year.

In 2025, the Chinese government continued to strongly support the real economy and technological self-reliance. For example, the October-released “JFF Recommendations for the Administration’s National Strategic Plan for Advanced Manufacturing” related document shows the government is actively planning and promoting advanced manufacturing development. Policy not only focuses on technology itself but emphasizes creating large-scale advanced manufacturing clusters through supporting infrastructure construction and incentivizing enterprise participation. This top-level design provides a long-term and stable policy environment for industry development.

HSBC Qianhai Securities analyst Sun Yu pointed out that “innovation-driven value revaluation is expected to spread,” accurately summarizing the long-term logic of this rally.

Against this macro backdrop, multiple sub-sectors performed particularly prominently, becoming key forces pulling the index upward:

• Technology Fields:
  • Enterprise-Level AI Software: Provides core tools for digital transformation across industries.
  • Semiconductor Equipment: Plays a crucial “pick and shovel” role in the AI “gold rush.”
  • Cybersecurity: As AI systems become increasingly important, demand for protecting their security rises accordingly.
• Advanced Manufacturing Fields:
  • Automation Equipment: Robot and smart factory solution providers are core to manufacturing upgrades.
  • Construction Equipment: Provides support for new manufacturing facility construction, directly benefiting from industry expansion.

The strong performance of these sectors constitutes the main momentum pushing the market’s center of gravity upward.

Rotation Opportunities in Brokerage and Innovative Drugs

Beyond the main theme of technology and advanced manufacturing, brokerage and innovative drug sectors, as important rotation opportunities, also injected vitality into the market.

Brokerage Sector is usually seen as the “bull market flag bearer.” With increased market trading activity and enhanced risk appetite, brokerage firms fully benefit from brokerage, investment banking, and asset management businesses. Their stock price performance is often highly correlated with the broader index, becoming an amplifier of market sentiment.

Innovative Drug Sector embodies the dual attributes of “technology + consumption.” On one hand, it benefits from similar policy support and R&D innovation drive as the technology field; on the other hand, with changes in population structure and rising health awareness, its demand has strong rigidity. During market oscillations, the innovative drug sector often shows good defensiveness, becoming an important direction for fund rotation.

2026 Investment Strategy and Risk Outlook

The rise in 2025 laid a solid foundation for the market, but looking ahead to 2026, investors still need to seek balance between opportunities and risks. Formulating clear investment strategies is key to grasping future rallies.

Core Holdings and Satellite Strategy Allocation

Facing a structural bull market, the “core-satellite” strategy is an ideal choice for balancing offense and defense. This strategy suggests investors allocate most funds to stable core assets while using a small portion to capture high-growth satellite opportunities.

Core Assets should focus on this bull market’s main theme, namely technological innovation and advanced manufacturing. These sectors have long-term growth logic and policy support, serving as the “ballast stone” of the portfolio.

For investors seeking related investment targets, you can refer to some examples in the US market to understand this logic:

• Semiconductors and AI Hardware: For example, products like VanEck Semiconductor ETF (SMH), whose holdings cover upstream hardware suppliers for AI development.
• Data Centers and Infrastructure: For example, products like Global X Data Center & Digital Infrastructure ETF (DTCR), focusing on infrastructure supporting AI computing.
• Semiconductor Equipment Manufacturing: For example, products like VanEck Semiconductor Equipment ETF (SMTX), investing in key equipment providers in the chip manufacturing process.

Identification and Response to Key Risk Points

No bull market is smooth sailing. In 2026, investors need to be vigilant about potential risk points, such as global macroeconomic uncertainties or policy changes in specific industries. Effective risk management is the guarantee for achieving long-term returns.

Professional investors usually use hedging tools to smooth portfolio volatility. These strategies aim to reduce losses during market downturns.

• Multi-Strategy Hedge Funds: Such funds diversify across multiple strategies to achieve more stable risk returns.
• Equity Long-Short Hedge Funds: Such funds aim to reduce overall stock market exposure, flexibly adjusting positions during market pullbacks to protect capital.

Outlook for 2026: New Space at 4500 Points

Despite market volatility, multiple mainstream institutions remain positive about the A-share market in 2026. Healthy valuation levels, continued earnings repair, and strong policy support jointly constitute the foundation for the index to continue rising.

Some institutions have given optimistic predictions, believing the market has potential to move toward higher targets.

Overall, 4000 points is likely just the new starting point of this healthy bull. For 2026, investors should maintain strategic composure, actively embrace structural opportunities while controlling risks, and welcome broader upside space.

Reviewing 2025, the Shanghai Composite Index standing above 4000 points is an important sign of the “healthy bull” starting, backed by resonance among economic fundamentals, policy support, and market confidence.

Looking ahead to 2026, investors should maintain strategic composure and continue focusing on the technology and advanced manufacturing core main theme to grasp structural opportunities.

Although the Chinese economy may still face deflation and other challenges, institutions like CICC remain bullish on the outlook. The market generally expects the index to move toward new space at 4500 points. Investors proceeding steadily amid volatility are expected to welcome broader upside space.

FAQ

What is the difference between this breakthrough above 4000 points and the “mad bull” in 2015?

This rally has a slower pace, presenting a stable “advance two, retreat one” characteristic. Overall market valuations are in a reasonable range, with the rise driven by corporate earnings rather than valuation bubbles. This indicates the market is healthier, fundamentally different from the rapid pull-up in 2015.

Which core sectors should investors focus on in 2026?

Investors should continue focusing on this bull market’s core main theme:

• Technological Innovation: Such as semiconductors and enterprise-level AI software.
• Advanced Manufacturing: Including automation equipment and new materials.

These sectors have long-term growth logic and policy support, being key to structural opportunities.

After the market stands above 4000 points, how should individual investors operate?

It is recommended to adopt a “core-satellite” strategy. Allocate most funds to technology, advanced manufacturing, and other main theme sectors as “core holdings,” and use a small portion of funds to capture brokerage, innovative drugs, and other rotation opportunities as “satellite allocation,” achieving a balance of offense and defense for steady progress.

What is the biggest risk facing the market in 2026?

Investors need to be vigilant about global macroeconomic uncertainties and policy change risks in specific industries. These factors may trigger short-term market volatility. Through reasonable asset allocation and risk management, potential market adjustments can be effectively addressed.