Chinese equities have staged a strong rebound this year, fueled by investor reassessment of the tech sector's value and household savings flowing into the stock market. Goldman Sachs predicts this rally will extend into 2026, albeit at a moderated pace.

In a Monday report led by Chief China Equity Strategist Kinger Lau, Goldman analysts noted China's market cycle is transitioning from "expectation-driven" to "earnings-driven," where profit realization and moderate valuation expansion will become key return drivers. The bank forecasts Chinese corporate earnings to grow 14% next year and 12% in 2027, with valuations potentially expanding by about 10%.

Goldman reiterated its projection that Chinese stocks could rise another 38% by end-2027. The report highlighted that overseas revenue growth among listed firms may boost MSCI China Index constituents' earnings by 1.5% annually through 2030. While China's AI tech ecosystem has undergone valuation reassessment, Goldman sees room for upside given China's capital expenditure potential and focus on AI commercialization—factors that still make it cheaper relative to U.S. peers.

Last month, Lau dismissed concerns about an AI-led bubble in Chinese tech stocks, arguing companies could further lift valuations and profits by focusing on AI applications. He noted China's distinct strategy of prioritizing AI implementation over computing power—a differentiation that may deliver stronger near-term commercialization results than the U.S. approach.

Goldman's 2024 outlook has proven accurate so far. Its late-2023 forecast of at least 13% gains for major Chinese indices in 2025—driven by policy support, earnings recovery, and valuation expansion—has been surpassed. Year-to-date, the CSI 300 Index (a benchmark for China’s A-shares) has surged over 17%, while the Hang Seng Index (representing Hong Kong stocks) jumped nearly 30%.

The rally gained momentum early this year as AI startup DeepSeek’s emergence triggered a tech sector re-rating—from Alibaba to Tencent—coinciding with a U.S. tech selloff. Concurrently, Chinese households shifted portions of their massive savings into equities amid declining deposit rates, further fueling the uptrend.

Other major banks including Morgan Stanley, JPMorgan, and UBS have recently echoed bullish views on Chinese stocks, particularly tech. JPMorgan’s Head of China and Hong Kong Equity Strategy, Wendy Liu, likened the current phase to "summer" in her quantitative macro cycle framework—anticipating a potential "spring sprint" in 2026 despite near-term pullbacks, with growth stocks likely regaining favor.