Since the beginning of the year, the Chinese stock market has experienced an &#34;epic&#34; rise, attracting investor attention. How does this rebound differ from previous ones? Can it continue to surge forward?
In a research report released on the 9th, Goldman Sachs stated that the Chinese stock market is experiencing the &#34;strongest start in history,&#34; with the MSCI China Index up 19% year-to-date, outperforming developed markets by 18% and emerging markets by 14%.
Moreover, since the recent low point, the MSCI China Index has surged by 29%, marking the third-largest rebound since the 2009 financial crisis, second only to the recovery rebound after the COVID-19 pandemic.
Goldman Sachs noted that the AI boom, the positive shift in the narrative surrounding Chinese technology, and the growth-promoting policy tone established during the National People's Congress have all contributed to this market rise by enhancing market valuations and improving profit expectations.
<h2>This Time is Different! Can the Rebound Continue?</h2>
The strong performance of the Chinese stock market this year has led many investors to question: How does the recent rebound differ from the strong but brief surge in late September?
Goldman Sachs believes there is a fundamental difference between the two rebounds: The policy shift in September eliminated left-tail risks, leading to a substantial re-evaluation of risk pricing; the recent rebound, however, is more driven by technical breakthroughs and innovation, resulting in significant improvements in corporate profits and valuations, which may be more sustainable than a rebound purely driven by liquidity and policy expectations.
The report adds that, based on various indicators, hedge funds are currently rebuilding positions at a more cautious pace, while long-term fund managers remain generally underweight. Southbound investors are purchasing Hong Kong-listed stocks at a record pace, and index valuations are not stretched by any measure—these signs indicate that if policy implementation and profit growth gradually materialize, there is further upside potential.
<h2>&#34;Two Sessions&#34; Set the Tone: Stabilizing Growth is the Hard Truth</h2>
The highly anticipated 2025 National &#34;Two Sessions&#34; kicked off on March 4th. The research report states that the government's work report's official GDP growth target of &#34;around 5%&#34; and a record 4% budget deficit as a percentage of GDP are largely in line with investor expectations and economists' baseline views.
Goldman Sachs believes that while some investors think the lack of unexpected policy stimulus could lead to a &#34;death by exposure,&#34; clear signals for growth promotion, low tolerance for systemic risks, the fulfillment of easing commitments, and specific support measures for the stock market are all crucial for anchoring growth expectations and controlling policy risk premiums, which is beneficial for stock market returns.
The fiscal support for consumption announced at the meeting (RMB 300 billion for replacing old consumer goods) and bank capital restructuring (RMB 500 billion) may seem weak compared to market expectations, but Goldman Sachs stated that the response function of policy easing should be dynamic, depending on the severity of external trade pressures and other domestic economic challenges.
<h2>AI Drives a &#34;Second Spring&#34; for Chinese Tech Stocks?</h2>
Goldman Sachs pointed out that the emergence of DeepSeek-R1 has changed the narrative of the Chinese technology industry, including other recently launched Chinese AI models and applications, enhancing investor optimism regarding AI growth and economic benefits
Goldman Sachs expects that the widespread adoption of AI technology could increase the earnings per share (EPS) of Chinese companies by 2.5% annually over the next decade and raise the fair valuation of the Chinese stock market by 15-20%, potentially bringing in over $200 billion in portfolio inflows.
So far, the market is moving in this direction: since the release of the R1 model, the MSCI China Index and the Hang Seng Tech Index have risen by 21% and 31%, respectively; the consensus earnings forecasts for offshore tech stocks for 2025 and 2026 have been revised up by 2% over the past month; after the Spring Festival, the fund positions and portfolio flows of domestic and overseas investors have significantly improved.
The report also points out that the valuation premium between U.S. and Chinese tech stocks has narrowed from 152% at the beginning of the year to 71% currently, indicating that the pricing of China's constructive AI narrative is more reasonable at present, and improvements in profitability may be a necessary condition for further growth in the AI tech sector.
<h2>Overseas &#34;long money&#34; is expected to return, with $30 billion in incremental demand &#34;on the way&#34;</h2>
Goldman Sachs also stated that the duration of the current Chinese bull market depends on the extent to which global mutual funds (with assets under management of $800 billion) rekindle their interest and support for Chinese stocks. These funds have been absent in the past few rebounds and have significantly reduced their exposure to China over the past three years.
Goldman Sachs observed that in the database tracking the MSCI ACWI benchmark, 49% of global mutual funds (with assets under management of $400 billion) currently have no exposure to China, while 37% of funds are under-allocated to China, with an average underweight of 330 basis points.
In other words, global long-term investors' allocation to the Chinese stock market remains close to historical lows, leaving room for further increases. According to Goldman Sachs' estimates, a 1 percentage point increase in global mutual funds' allocation to Chinese stocks would result in a net buying of $8 billion; if the allocation reaches a neutral level, it could bring about $30 billion in incremental demand.
<h2>A-shares and private enterprises are expected to see a reversal</h2>
Market performance shows that in this round of AI-driven rally, the relative return gap between the MSCI China Index and the CSI 300 Index over the past three months is currently 15 percentage points, with A-shares significantly lagging behind H-shares.
The report states that historically, such extreme return differences almost always lead to mean reversion. Goldman Sachs' A-H market rotation model predicts that due to more supportive domestic policies and the compression of the A-H premium, A-shares are expected to outperform H-shares in the next three months.
Additionally, the report cites regulatory proxy indicators for private enterprises (POE) showing that the current regulatory environment for private enterprises is at its most lenient level since 2017, which is conducive to private listed companies regaining a leading position relative to state-owned enterprises

Goldman Sachs believes that the recent stock market rebound is fundamentally different from that in September last year: the policy shift in September eliminated left-tail risks, leading to a substantial re-evaluation of risk pricing; the recent rebound is more driven by technical breakthroughs and innovation, resulting in a significant improvement in corporate earnings and valuations, which may be more sustainable than a rebound purely driven by liquidity and policy expectations

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Goldman Sachs: The Chinese stock market is 迎来 "the strongest start in history," this time it's different!