Analysis: AI, Policy and Private Giants Drive Goldman’s China Optimism

Goldman Sachs has issued a notably bullish outlook on Chinese equities, forecasting a strong rebound in the second half of this year despite prevailing investor caution. The investment bank has maintained its “overweight” recommendation for both A-shares on the Chinese mainland and Chinese companies listed overseas, projecting the CSI 300 Index will increase by more than 10% from current levels to reach 4,600. Goldman expects the earnings of MSCI China companies to grow by 9% this year and 10% the next, with profit growth as the primary driver. This stance is seen as contrarian, as it bets on Beijing’s capacity to respond to geopolitical pressures, particularly from the U.S., and anticipates a rebound of China’s leading corporations. The MSCI China Index currently trades at 11.7 times earnings, with Goldman forecasting it may rise further over the next year [para. 1][para. 2][para. 3][para. 4][para. 5].

A central factor in Goldman’s outlook is the risk from U.S. tariffs. Its base case assumes the current average tariff rate of approximately 40% holds steady. Should tariffs be halved to 20%, Goldman estimates corporate profit growth could soar to 16% and valuations could reach 13 times earnings; however, higher tariffs would be negative. Earlier, Goldman trimmed its corporate earnings forecast due to trade tensions but has since restored its 9% earnings growth estimate, concluding that Chinese firms can absorb existing tariffs, supported by favorable domestic fiscal policies. The bank believes Chinese equities have possibly bottomed out and are likely to recover in the latter half of the year, maintaining its “overweight” rating. This optimism makes Goldman Sachs more bullish than most foreign banks, which largely remain cautious [para. 6][para. 7][para. 8][para. 9][para. 10].

Goldman cites three primary reasons for its confidence. First, it highlights the transformative potential of artificial intelligence (AI), revising its long-term profit forecast upwards and projecting that AI adoption will add 1-2 percentage points to annual earnings growth for listed companies over the next decade. Second, Goldman believes Beijing’s policy mechanisms are robust enough to offset much of the negative impact from tariffs. Third, it expects a slight inflation rebound to bolster corporate profit margins, following a period of deflation that reduced earnings [para. 11][para. 12][para. 13].

A key element of Goldman’s positive forecast is China’s growing private sector, which has shown improvement. Drawing a parallel to the U.S.’s “Magnificent Seven” tech giants, Goldman identifies the “Nifty Ten” Chinese champions, which include companies like Tencent, Alibaba, Xiaomi, BYD, Meituan, NetEase, Midea Group, Hengrui Medicine, Ctrip.com, and Anta Sports. These businesses are seen as capable of continuing growth even amid macroeconomic pressures. Regulatory stability has improved since 2022, and the new Private Enterprise Promotion Law signals further support. Private firms have rebounded in revenue and return on equity, and with the top 10 Chinese firms making up only 17% of market capitalization—versus 30% in the U.S.—Goldman sees ample growth opportunity. Firms with strong R&D and capital expenditure, especially in AI, are expected to outperform [para. 14][para. 15][para. 16][para. 17][para. 18][para. 19].

Despite this, global investors remain hesitant. International allocations to Chinese stocks dropped from 13% in early 2023 to 6.5% by the end of 2024, rebounded to 9.1% in March 2025, and have slipped to around 7%. Hedge funds have pulled back more sharply but are poised to re-enter if valuations dip. Long-only funds are stable yet underweight. Conversely, capital inflows via Southbound Stock Connect from the mainland to Hong Kong stocks are surging, nearing $90 billion this year and targeting dividend, AI, and consumer stocks. Goldman expects Chinese equities could take a larger share of global portfolios if macro conditions improve, but for now, global investors await clarity from the July Politburo meeting and U.S.-China tariff negotiations [para. 20][para. 21][para. 22][para. 23][para. 24][para. 25][para. 26].

For the coming months, Goldman advises focusing on AI, high-dividend stocks, and firms with strong export exposure to emerging markets. The bank remains overweight on the consumer sector, along with government-supported industries like medical equipment, banks, and real estate. While “new consumption” stocks are sought after, their crowded trades and high valuations may cap gains, whereas pharmaceuticals, especially innovative drugmakers, might be attractive due to low valuations and sound fundamentals [para. 27][para. 28][para. 29][para. 30][para. 31].