Goldman forecasts continued growth for Chinese stocks in 2026 as risks fade

Chinese stocks are set to extend gains next year after rising for a second year on fading geopolitical risks, investors re-evaluating the technology sector and household savings finding their way into equities amid low interest rates.\nThe CSI 300 Index of the biggest stocks traded on the mainland has risen 17 per cent this year, while Hong Kong’s Hang Seng Index has advanced almost 30 per cent. The stellar gains have taken by surprise many global investment banks and asset-management firms, which had turned cautious on Chinese stocks earlier this year.\n“We expect the bull run to continue, but at a slower pace,” said Goldman Sachs analysts led by Kinger Lau in a report on Monday. “This is reminiscent of an equity cycle transition from hope to growth, where both earnings realisation and moderate [valuation] expansion typically supersede strong but volatile re-rating gains to drive returns.”\nArtificial-intelligence start-up DeepSeek’s sudden rise in January prompted a re-rating of Chinese technology stocks from Alibaba Group Holding to Tencent Holdings, while triggering a rout in their US peers. After stocks initially tumbled in April following the Trump administration’s “Liberation Day” tariffs, risk sentiment quickly recovered as the world’s two largest economies reached deals to tentatively put aside the tariff dispute.\n\nMeanwhile, the diversion of some of the 163 trillion yuan (US$23.2 trillion) in Chinese households’ savings to the stock market seeking higher returns amid falling bank deposit rates and a continuing slump in home prices fuelled the rally further.\nGoldman correctly predicted the rally in Chinese stocks this year, forecasting a gain of at least 13 per cent in key equity gauges because of a recovery in earnings growth and valuation expansion on the back of policy support for the economy and capital markets.\nThe US investment bank reaffirmed its call in its latest report, noting that Chinese stocks would gain 38 per cent up to the end of 2027, which would be driven by a 10 per cent re-rating potential and profit growth rates of 14 per cent in 2026 and 12 per cent the following year.\nChina’s ongoing campaign to reduce excess capacity in some parts of the green economy could boost the profits of these industries by more than 50 per cent up to 2027, it said.\nThe rally lured back overseas investors. Global hedge funds raised their exposure to Chinese stocks to 7.8 per cent in November from 6.8 per cent at the start of the year, with emerging-market and Asian mutual funds also narrowing their underweight positions, according to Goldman. Meanwhile, long-duration money managers, such as sovereign wealth funds and pension funds in emerging-markets nations and those linked to China’s Belt and Road Initiative, snapped up initial public offering shares in Hong Kong as cornerstone investors.\nFor the year, telecoms, material producers and information technology stocks emerged as the best performers on the CSI 300, rising more than 30 per cent. In Hong Kong, aluminium maker China Hongqiao Group, gold producer Zijin Mining Group and biotech firm Innovent Biologics more than doubled, leading the gainers in the 89-member Hang Seng Index.\nThe seeds for this year’s rally were sown in September last year, when China pivoted to pro-growth policies, unveiling a broad stimulus package to boost stocks and bail out the property market.\n“The turning point was last fall, when Beijing’s rhetoric and policies began to focus more on boosting growth and supporting entrepreneurs with less regulatory handling,” said Brook McConnell, president of South Ocean Management, a Hong Kong-based asset management firm.\nGoldman said the five risks it had highlighted as hurdles to stocks this year had already waned or were priced in. Those headwinds included a global recession, AI exuberance, US-China tensions and disinflation.\n“Overall, it seems clear to us that the macro and equity-market policy put remains in effect,” Goldman’s Lau said. “It should help reduce left-tail growth and policy risks, thereby compressing equity risk premia and shifting the expected fair value of Chinese stocks rightward.”\n