Goldman Sachs Remains Bullish On China Equities: AI And Overseas Expansion To Drive Earnings, MSCI China Seen Rising 20% In 2026

Goldman Sachs reiterated a constructive outlook for China’s equity market in its 2026 China market outlook, forecasting that faster corporate profit growth will propel the MSCI China Index and the CSI 300 Index higher by 20% and 12% respectively, and maintaining an overweight stance on both A‑shares and H‑shares. The report, published by the team led by Liu Jinjin, Chief China Equity Strategist, argues that after last year’s valuation recovery, market leadership in 2026 should shift decisively to earnings momentum. Goldman projects aggregate profit growth for listed Chinese companies to accelerate from 4% in 2025 to 14% in 2026, driven by artificial intelligence (AI), corporate overseas expansion and policies aimed at reducing domestic overcompetition. The TMT sector is expected to benefit particularly strongly, with earnings growth of about 20% supported by AI monetization and higher capital expenditure.

On capital flows, Goldman expects southbound net purchases to reach a record $200 billion in 2026. The bank also estimates that domestic asset reallocation could contribute roughly RMB 3 trillion of incremental demand for equities, while dividends and buybacks combined may approach RMB 4 trillion for the year, offering meaningful cash returns to investors. Regarding valuation, Goldman views the MSCI China forward P/E of 12.4x as mid‑cycle and broadly consistent with its macro assumptions, but notes that AI commercialization, potential fiscal stimulus and the possibility of liquidity overshoots leave substantial upside optionality for the market.

Goldman emphasizes that earnings delivery will be the central theme in 2026. Following a 20%–30% rally in 2025 that was largely valuation‑driven, future performance will hinge on profit realization. The firm’s forecast of 14% earnings growth for MSCI China and CSI 300 in 2026–27 reflects its view that AI, overseas expansion and anti‑involution measures will materially lift corporate profitability. The bank highlights a group of leading companies it terms the “China Outstanding 10” as well positioned to benefit from a supportive regulatory backdrop and AI breakthroughs, and it upgraded hardware technology to overweight, identifying the segment as a key beneficiary of AI deployment and self‑reliance strategies.

On funding dynamics, Goldman expects multiple long‑term investor channels to support the market. Southbound flows are seen as a primary driver, underpinned by an expanded investment scope, a persistent A/H premium of about 37% and attractive dividend yields in Hong Kong equities (the Hang Seng China High Dividend Yield Index yields 5.7%). Domestic institutional reallocation is another potential source of inflows; Goldman estimates that lower risk‑free rates could prompt insurers and pension funds to shift roughly RMB 3 trillion toward high‑dividend equities. The bank also notes that a 100‑basis‑point reduction in global mutual funds’ underweight to China could translate into about $16 billion of incremental demand. Corporate buybacks are expected to rise about 20% in 2026, and together with dividends could bring total shareholder returns close to RMB 4 trillion.

Sector positioning in Goldman’s view is being reshaped by AI. The firm retains overweight ratings on internet/media entertainment, online retail, materials and insurance, and has upgraded technology hardware from neutral to overweight. Analysts identify opportunities across the hardware supply chain, including smartphones, AI servers and data centers (and associated cooling systems), semiconductors and physical AI applications such as robotics, while remaining selective on personal computers. Internet and retail platforms are building integrated AI ecosystems spanning chips, large language models, data centers and applications; Goldman expects food‑delivery subsidy losses to ease in 2026 and for rising AI capex to bolster profitability. Insurance has shown premium growth improvement in late 2025 and may benefit further from declining real rates that shift cash into investment assets, with the sector trading at an attractive forward P/E of 7.1x and P/B of 1.0x. New infrastructure and AI investment are identified as fresh growth contributors, and anti‑involution measures have modestly improved pricing in some capacity‑constrained subsegments. Goldman’s commodity strategists remain constructive on precious metals, particularly gold.

Despite the market rebound last year, Goldman judges valuations to remain compelling. The MSCI China and CSI 300 trade at forward P/Es of 12.4x and 14.5x respectively, near mid‑cycle levels, and the MSCI China still discounts developed markets by about 38% and other emerging markets by about 11%. Goldman’s macro model implies year‑end target P/Es of 13x for MSCI China and 15x for CSI 300, indicating that current prices do not fully capture AI optionality, potential policy stimulus or a liquidity overshoot. The bank highlights scope for equity risk premium compression as domestic risk‑free rates decline, which could support multiple expansion.

On policy, Goldman expects 2026—the opening year of the 15th Five‑Year Plan—to remain broadly supportive. In addition to monetary and fiscal measures, regulators are likely to sustain a constructive stance toward the private sector and continue to emphasize the stock market’s role in resource allocation and wealth creation, providing a favorable policy backdrop for stable market performance.