After experiencing two consecutive years of growth, the Chinese stock market is now at a new starting point.
According to news from the Chasing Wind Trading Desk, analysts including Kinger Lau from Goldman Sachs' Portfolio Strategy Research Team systematically reviewed the top ten core trends for the Chinese stock market in 2025 in their latest report released on December 22. They pointed out that the market may be brewing a &#34;slow bull&#34; market driven by profit growth taking over from valuation repair, with artificial intelligence (AI), &#34;anti-involution&#34; policies, and capital repatriation becoming key variables defining the future market direction.
The report titled &#34;10 Stock Insights from 2025&#34; indicates that China's A-shares and H-shares are expected to record annual returns of 16% and 29% in 2025, significantly surpassing the bank's earlier predictions. The report emphasizes that this round of growth is primarily driven by valuation rather than profit growth, marking a potential transition of the market cycle from the &#34;hope&#34; phase to the &#34;growth&#34; phase.
One key dynamic highlighted in the report is that China's trade performance has exceeded expectations. Meanwhile, the breakthrough in AI technology marked by the release of DeepSeek-R1 has &#34;changed the game for Chinese tech stocks,&#34; bringing over $2 trillion in market value growth to related sectors. This technological wave is fundamentally rewriting the investment narrative in the tech industry.
Looking ahead, Goldman Sachs believes that although risks still exist, effective policy &#34;puts&#34; have reduced the left-tail risk in the market. With domestic and foreign capital showing renewed interest in Chinese assets, and the unique diversification value of the Chinese market becoming increasingly prominent, investors should maintain participation in the market and take advantage of pullback opportunities for positioning.
<h2>A Slow Bull Market May Be Brewing</h2>
Goldman Sachs' report notes that the Chinese stock market has achieved positive returns for two consecutive years, with A-shares and H-shares rebounding 30% and 75% respectively since the cyclical low at the end of 2022. The report states, &#34;A slower bull market may be forming.&#34;
This year's rally has been primarily led by valuation repair. Data from the report shows that &#34;the 12-month forward price-to-earnings ratio of the MSCI China Index has risen from 9.9 times at the beginning of 2025 to the current 12.5 times, while the forward earnings per share (fEPS) for the year has decreased by 4%.&#34;
In terms of style, growth and GARP (Growth at a Reasonable Price) strategies have performed the best, while value and high dividend strategies have lagged behind.
Goldman Sachs expects, &#34;the bull market will continue, but the pace will slow,&#34; predicting that by the end of 2027, the Chinese stock market will rise by 38%, primarily driven by profit growth of 14% and 12% in 2026 and 2027, respectively.
<h2>Trade Performance Exceeds Expectations</h2>
At the beginning of 2025, the external environment that the market was generally worried about did not materialize. Goldman Sachs pointed out that despite the shadow of tariffs, &#34;China's exports grew by 5.4% year-on-year, and the renminbi appreciated by 4% against the US dollar.&#34;
The strong export performance has led Goldman Sachs economists to raise their GDP growth forecast for China in 2025.
<h2>AI Reshaping Investment Logic in Tech Stocks</h2>
The report emphasizes, &#34;AI has changed the game for Chinese tech stocks.&#34; The release of DeepSeek-R1 has triggered a strong rebound in Chinese tech companies, with average stock prices in data and cloud, semiconductors, and AI infrastructure and power sectors rising by 40%, adding over $2 trillion in market value
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From a fundamental perspective, Goldman Sachs estimates that &#34;the widespread adoption of AI over the next decade could drive corporate earnings growth by 3% annually through cost savings, productivity improvements, and new revenue opportunities.&#34;
The report believes that although the valuation of China's AI ecosystem has been reassessed, &#34;considering China's potential upside in capital expenditure and the commercialization of AI applications, its valuation does not appear expensive compared to the United States.&#34;
<h2>A Steady and Long-Term Path to &#34;Going Global&#34;</h2>
In the face of headwinds from trade protectionism, China's exports have shown resilience in 2025, proving that its export story has evolved. The report suggests that China is transitioning from a low-cost manufacturer to selling high-value-added products to emerging markets and is beginning to &#34;export services, intellectual property, and culture&#34; to the world.
Data shows that the proportion of overseas income for Chinese listed companies has increased from 12% a decade ago to 16% currently, with Goldman Sachs predicting it could reach 20% by 2030. Due to higher profitability in overseas markets, this is expected to contribute an additional approximately 1.5% growth to the earnings of the MSCI China Index annually.
The &#34;China Going Global Leaders&#34; investment portfolio constructed by the report has risen 35% so far this year, outperforming the MSCI China Index by 9 percentage points.
<h2>Consumption Differentiation: Strong Performance in &#34;New&#34; Consumption Areas</h2>
Despite the ongoing drag on overall consumption from a weak real estate market and slowing household income growth, with retail sales increasing only 4% year-to-date, the report points out significant differentiation within the consumption sector. Service consumption generally outperforms goods consumption.
More importantly, the report finds that &#34;new&#34; consumption sectors such as entertainment, specialty retail (like Pop Mart), leisure, and packaged foods (like pet food) are performing strongly.
These sectors saw &#34;an average net profit growth of 28% in the first half of 2025, while the overall consumption sector (excluding the internet) grew by 5%.&#34; Correspondingly, &#34;new&#34; consumption theme stocks have achieved a return of 43% year-to-date, significantly outperforming the market.
<h2>&#34;Anti-Involution&#34; Ignites Re-Inflation Hopes</h2>
The &#34;involution&#34; caused by overcapacity, fierce competition, and deflation has harmed corporate profits in industries such as photovoltaics, batteries, chemicals, and cement. The report notes that &#34;anti-involution,&#34; first proposed at the Politburo meeting in July 2024, has risen to the level of national strategy.
Goldman Sachs analyzes that every 1% increase in the PPI (Producer Price Index) can drive a 2% growth in corporate profits.
The report estimates that &#34;potential supply-side reductions and industry consolidation could boost profits in 'involution' industries by 50% after profit margins normalize by 2027,&#34; and increase overall index earnings by 5% by 2028. Although buy-side institutions remain skeptical, Goldman Sachs believes the potential upside of related policies is &#34;attractive in pricing&#34; in certain industries.
<h2>The &#34;14th Five-Year Plan&#34; Reshapes the Investment Blueprint</h2>
The report emphasizes that China's five-year plans have a very high implementation rate, and aligning investment layouts with the plans is an effective strategy. Goldman Sachs' text analysis based on large language models (LLM) shows that &#34;if investors had aligned their portfolios with broad policy trends over the past 25 years, they could have generated an annualized excess return of 13%.&#34;
According to the &#34;14th Five-Year Plan&#34; recommendations released in late October 2025, technology, security, and people's livelihoods have become the primary development focus for 2026-2030. Goldman Sachs has constructed a &#34;14th Five-Year Plan&#34; investment portfolio based on this, which includes 50 mid-cap stocks. This portfolio has achieved a return rate of up to 68% over the past year, far exceeding the 27% increase of the MSCI China Index.
<h2>Capital Reflow: Enhanced &#34;Investability&#34; of the Chinese Market</h2>
The report observes that the Chinese market is re-entering the sight of global investors. Domestically, &#34;domestic capital eager for equity assets is taking action,&#34; with southbound capital inflows reaching $180 billion year-to-date, setting a historical record; institutional investors such as insurance companies are becoming more positive towards equity assets; the market value of A-shares held by the &#34;national team&#34; has exceeded 6%.
Overseas, global hedge funds have increased their net exposure to China from 6.8% at the beginning of the year to 7.8% by the end of November. At the same time, sovereign wealth funds and pension funds from emerging markets and along the &#34;Belt and Road&#34; have also &#34;expressed strong interest in Chinese equity assets.&#34; The report believes that these factors collectively demonstrate that &#34;China is investable.&#34;
<h2>The Value of Diversification Highlights</h2>
As global investors seek alternative options outside the U.S. market, the value of the Chinese market is increasingly evident. The report points out that &#34;the return correlation between China and the U.S. stock markets is one of the lowest among major markets,&#34; and its valuations still have a deep discount of 35% and 9% compared to developed and emerging markets, respectively.
For domestic investors, diversification is equally important. The report states that &#34;the asset allocation of individual investors is far from reaching its optimal efficiency frontier,&#34; with real estate and cash accounting for 54% and 28% of their assets, while equity assets only account for 11%.
As the real estate market remains relatively sluggish, while equity assets begin to outperform other asset classes, the report believes that &#34;the structural migration of Chinese capital towards equity assets may have already begun.&#34;
<h2>Risks Remain, but Impact is Limited</h2>
Although macro risks still exist, the report points out that these key risk factors &#34;are either fully priced in or will dissipate by 2025.&#34; For example, the influence of the real estate industry on the economy has decreased.
Goldman Sachs concludes that &#34;the macro and stock market policy 'put' remains effective.&#34; This should help reduce left-tail risks in growth and policy, thereby compressing equity risk premiums.
The report advises investors to &#34;maintain investments and accumulate positions during pullbacks to better profit from the recovery of the earnings cycle and right-tail options.&#34;
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DPSK

Goldman Sachs believes that after two consecutive years of gains, the Chinese stock market is brewing a "slow bull" market. DeepSeek has triggered a surge in the AI sector, increasing its market value by $2 trillion. The "anti-involution" policy may drive corporate profits to soar by 50%. The thematic portfolio of the "14th Five-Year Plan" has achieved an annual return rate of up to 68%, and domestic and foreign capital is accelerating its return. Goldman Sachs expects the Chinese stock market to rise by 38% by the end of 2027, with profit growth taking over from valuation recovery

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DeepSeek

Goldman Sachs reviews the top ten trends in the Chinese stock market for 2025: AI re-evaluates technology, anti-involution repairs profits, and a slow bull market is on the way