Summary: Goldman Sachs stated that the Chinese stock market has shaken off the negative impact of the Trump trade war, and the market has recovered, upgrading the ratings of the Chinese banking and real estate sectors to overweight.
FX168 Financial News (Asia Pacific) reported that Goldman Sachs Chief China Equity Strategist Kinger Lau stated that the Chinese stock market has shaken off the negative impact of the Trump trade war, and the market has recovered, upgrading the ratings of the Chinese banking and real estate sectors to overweight.
"We need to pay more attention to execution and find the right investment direction, especially in light of the recent rebound in market indices," Lau stated during an interview. "Investors should allocate to those industries with higher risks and returns."
(Source: SCMP)
Goldman Sachs' research report last week stated that the Chinese stock market has fully recovered from the 13% decline following U.S. President Trump's announcement of comprehensive tariffs on April 2.
The trading prices of the MSCI China Index, CSI 300 Index, and Hang Seng Tech Index are all 2% to 4% higher than their respective peaks in early April.
Goldman Sachs stated that in the next 12 months, Hong Kong H-shares are expected to rise by about 12%, and Chinese A-shares are expected to rise by about 17%.
Lau said, "Now is still a good time to buy."
However, as U.S.-China relations evolve, the situation may change.
At the beginning of last week, the U.S. and China preliminarily agreed to reduce the additional tariff rate imposed by the U.S. on Chinese goods to 30% based on previously levied tariffs, while China's additional tariff rate on U.S. imports would be reduced to 10%.
Although the relationship between the two sides has temporarily eased, Goldman Sachs' basic assumption regarding tariffs after the 90-day truce agreed upon by both sides remains at 40%.
Lau said, "I would like to point out one thing: if you look at the so-called negotiations in trade war 1.0, you will find that it took nearly two years to reach an agreement."
Goldman Sachs expressed particular optimism about China's AI sector after the low-cost, high-performance large language model from AI startup DeepSeek attracted global attention.
Lau said, "We are very focused on consumer technology, including internet companies, hyperscale enterprises, data center operators, and cloud operators."
In addition, Goldman Sachs expressed enthusiasm for the service sectors such as education, tourism, hotels, catering, and sports. Last month, the bank upgraded the ratings of the Chinese banking and real estate sectors to overweight, as these sectors benefit from policy support from China.
Lau pointed out, "Bank stocks are cheap, and the dividend yield is also very high, which makes shareholder returns a key theme we have emphasized over the past two years."
The outlook for China's real estate market remains unclear, but he sees early signs of recovery and believes that given the low valuations of state-owned developers, their risk-reward ratio is good.
He said, "The two industries we are overweighting have two common points: they are primarily domestic market-focused and are expected to receive more policy support from the government."
In recent years, China's securities regulatory agency, the China Securities Regulatory Commission, has been urging listed companies to take more measures to boost stock prices and enhance shareholder returns.
"Shareholder returns, including dividends and company stock buybacks, remain a key focus for us, and we believe there is still significant room for improvement in the future," Lau added.
In 2024, the total amount of dividends and stock buybacks from all Chinese listed companies reached a historical high of 3.4 trillion RMB, approximately 472 billion USD. He stated that the market generally expects an increase of about 10% for this metric in 2025.
He also mentioned that the strengthening of the RMB/USD exchange rate helps in investing in Chinese stocks. Goldman Sachs expects the RMB/USD exchange rate to rise to 7 by mid-next year.
The trade tensions with the U.S. may provide China with an opportunity to increase domestic consumption.
Lau mentioned, "Now is an excellent time for the world's second-largest economy to prioritize domestic demand, as relying entirely on exports for growth is no longer the right path."
After assessing the impact of trade tensions, policy measures, and economic data, China may increase fiscal support in July.
Lau stated, "Stock investors should not be overly influenced by external pressures, especially those concerning China."
