Why is the CSI 300 seriously undervalued?

Let's first look at the current situation. The total market capitalization of the CSI 300 is about $9 trillion, while the S&P 500, as a benchmark, has a total market cap of $60 trillion. The combined market value of the two giants in the US stock market, Nvidia and Apple, is $8.4 trillion. The CSI 300 represents the 300 largest listed companies in A-shares, which can be understood as the core asset pool of China's economy.

How big is the valuation gap? In terms of the dynamic P/E ratio, the CSI 300 is only 14 times, while the S&P 500 is as high as 26 times. This means investors are paying half the price for A-shares compared to US stocks. Regarding dividend yield, the CSI 300 reaches 3.4%, a historic high, far exceeding bank fixed deposit rates of 1.1%-1.5% and government bonds at 1.7%. From a cash return perspective, the CSI 300's dividend payouts are real and substantial.

Where is the real problem? Profits.

In 2024, the total profits of the CSI 300 are only 4.52 trillion yuan, and it is expected that in 2025, profits will still be less than 5 trillion yuan. In comparison, the S&P 500's profits are about $2.3 trillion (roughly 16-17 trillion RMB), a gap of about three times. More critically, the profit growth rate of the CSI 300 has been consistently lower than that of the S&P 500 over the long term, which is the fundamental reason for its low P/E ratio. Essentially, undervaluation reflects insufficient growth expectations.

A 10,000-point index level is not a dream, but what conditions are needed?

Pushing up valuations itself is a bubble. Only profit growth can be a sustainable upward driver. Suppose the total profits of the CSI 300 grow from the current 5 trillion yuan to 7 trillion yuan, then at a P/E of 16, the market cap could reach 128 trillion yuan, making the 10,000-point mark achievable. Even without reaching 8 trillion yuan, 7 trillion yuan is enough.

How difficult is this growth? According to the "14th Five-Year Plan" (2025-2030), achieving a 40% profit increase over five years, with an annual growth rate of about 7%, is not far-fetched. This is well within reach—allowing companies to moderately raise prices, encouraging innovation and exports, and opposing unnecessary internal competition are all existing policy tools. In recent years, the profit growth of the CSI 300 has already begun to match or surpass nominal GDP growth, indicating an improving trend.

Further thoughts on P/E ratios.

Globally, rising P/E ratios are becoming the trend. Earning interest from long-term fixed deposits is no longer cost-effective; inflation erodes principal, which is a hard truth. Although China currently does not face obvious inflation, macroeconomic policies have long aimed for moderate price increases—this is almost inevitable. If nominal GDP growth remains at a reasonable level, for example, a 10% increase over five years with only 2% annual inflation, this is not unusual historically.

Within this framework, a P/E ratio of 18 for the CSI 300 is acceptable. This is much lower than the historical high of 20, and is supported by fundamentals. Maintaining a dividend yield of around 3% also provides decent returns for shareholders.

The 2030 outlook.

By the end of the "14th Five-Year Plan," if the CSI 300's annual profits reach 7 trillion yuan, accounting for 4% of the GDP that year. Nominal GDP would grow from 140 trillion yuan in 2025 to 175 trillion yuan (a 25% increase, with an annualized growth of about 4.5%), which is within the range of steady growth targets. The index reaching 10,000 points at an 18 P/E ratio is entirely conceivable.

What is the key variable supporting all this? Policy allowing core companies to become stronger and permitting reasonable profits. The previous years' approach of suppressing profit growth led to the CSI 300's profit growth being lower than nominal GDP growth. The recent shift in direction is correct: encouraging high-quality companies to grow, supporting exports and innovation, which will drive the fundamentals of the entire index upward.

From a data-driven perspective, the roadmap for the CSI 300 to break 10,000 points is not an aggressive fantasy but based on reasonable growth assumptions. The key is continuous policy support and whether core assets can realize their growth potential in this era.