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Leading financial institutions UBS Group and Goldman Sachs Group are optimistic about the performance of Chinese stocks this year, with the market starting the year on a strong note.
“If I had to sum up last year’s performance of China’s capital markets in one sentence, it would be that it greatly exceeded expectations,” said Amy Hu, president of UBS China. She highlighted multiple factors that could support continued growth.
The Shanghai Composite Index surpassed 4,000 points on January 5 and remained above that level for four consecutive trading days. Meanwhile, the broader Shenzhen market has increased by about 3.8% since the end of last year.
Regarding valuations, the price-to-earnings ratio of the MSCI China Index is approximately 13 times, a slight increase from the average over the past decade. Investor participation remains below historical peaks, Hu noted. She added that both internal shifts within China and external global economic changes, along with policies focused on “going global” and “anti-involution” efforts, are favorable for the Chinese market.
“More importantly, the fundamental structure of Chinese companies is undergoing significant changes,” she explained. The corporate business model has shifted from growth driven purely by scale to a focus on profitability, technological innovation, long-term value, and competitive advantage.
Hu predicts that earnings growth for the MSCI China Index could reach 14% or more this year, fueled by internet platforms, high-end manufacturing, and companies expanding overseas.
Foreign investors’ stance toward Chinese assets has become more active, moving away from a cautious wait-and-see approach last year. Some are even rebuilding their China-focused teams, Hu said.
“Allocation to Chinese assets by the world’s top 40 global investors rebounded significantly last year from 2024 levels, but there’s still considerable room for growth compared to the average from 2017 to 2021,” stated Steven Chen, co-head of global investment banking at UBS Securities. He added that tech and AI stocks are highly attractive to foreign investors, with innovation and AI industries poised to become key growth drivers.
Goldman Sachs also forecasts positive gains, with the MSCI China Index expected to rise by 20% and the CSI 300 Index, which tracks the top 300 stocks listed in Shanghai and Shenzhen, projected to increase by 12% this year.
Despite low earnings growth, valuation levels, and investor positioning, Chinese stocks are seen as offering a favorable risk-reward balance, according to Kinger Lau, chief China equity strategist at Goldman Sachs. He predicts the market will shift focus from valuation expansion to earnings-driven growth, with tech, media, and telecom companies potentially experiencing earnings jumps of about 20%.
Net allocations from global hedge funds to Chinese stocks currently stand at 7.6%, down from previous peaks of 11% to 13%. Additionally, net inflows of southbound capital could reach a record high of USD 200 billion in 2026, Goldman Sachs forecasts.
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