Goldman Sachs' latest research report indicates that the current rally in Chinese stocks is primarily driven by retail investor funds, but substantial "idle capital" remains on the sidelines, providing momentum support for further market gains, with particular optimism for small and mid-cap performance.

On August 21st, Goldman Sachs stated in its latest research that Chinese households are estimated to hold 55 trillion yuan in "excess deposits," with currently only 22% of household financial assets allocated to funds and stocks, implying potential capital inflows exceeding 10 trillion yuan.

Goldman Sachs noted that this trend suggests Chinese equity markets, especially small and mid-cap stocks, still possess significant upside potential. The CSI 1000 and CSI 500 small and mid-cap indices deserve particular attention, benefiting from higher retail ownership ratios, more balanced sector allocation, and greater exposure to high-tech manufacturing.

The firm's Cash Desk data shows that A-shares have recently been the most net-bought market consecutively, with capital resilience becoming more prominent against the backdrop of U.S. technology stock corrections. Technical indicators also show the Chinese stock market rally is broadening.

Massive "Idle Capital" Yet to Enter Market, Bullish on Small and Mid-Cap Stocks

According to Goldman Sachs' household financial asset chart, Chinese household cash deposits account for 63%, while stocks and funds represent 22%.

Goldman Sachs' research department estimates that Chinese households hold approximately 55 trillion yuan in "excess deposits." With currently only 22% of household financial assets allocated to funds and stocks, this implies potential capital inflows could exceed 10 trillion yuan.

The report states that Bloomberg data corroborates this view from another angle: the ratio of total household deposits to A-share total market capitalization similarly demonstrates enormous capital allocation potential.

Goldman Sachs particularly noted that signs indicate this capital transfer is already occurring. Data shows China's monthly household deposit changes in 2025 have turned notably negative, while non-bank financial institution deposits have increased, potentially suggesting resident savings may be shifting from bank deposits to stocks and other financial assets.

Goldman Sachs emphasizes its bullish outlook on small and mid-cap indices' long-term upside potential, particularly the CSI 1000 index. This index has retail ownership as high as 61%, while foreign ownership is only 2.5%. The CSI 500 index has 51% retail ownership with foreign ownership at just 1.4%.

Goldman Sachs states that the CSI 1000 index has the largest exposure in margin trading, with a scale of $62 billion, representing 3.5% of market capitalization. Higher retail ownership ratios, higher turnover rates, and greater margin trading exposure make small and mid-cap indices more sensitive to market performance, sentiment, and liquidity conditions.

From a sector allocation perspective, small and mid-cap indices feature more balanced weight distribution. The CSI 1000 index has only approximately 10% weight in traditional sectors like financials, real estate, energy, and utilities, while technology hardware and software account for 25% and healthcare for 12%, better aligning with national strategic policy directions.

This analysis indicates that as massive idle capital gradually enters the market, Chinese stocks, particularly small and mid-cap stocks, still possess significant upside potential.

Market Momentum Continues Strengthening, Concentration Risk Dissipating

Goldman Sachs trading desk data shows that A-shares have consistently been the most net-bought market recently, with buying multiples reaching 1.1x.

From sector perspectives, Goldman Sachs notes that long-term investors dominate buying activity, with information technology, industrials, and consumer sectors leading gains, while financials and materials sectors faced net selling. Although hedge funds took profits in the information technology sector, this represents only a small portion of overall capital flows.

Meanwhile, technical indicators show the Chinese stock market rally is broadening. Approximately 10% of Shanghai Composite Index constituents and 8% of Shenzhen Component Index constituents hit 52-week highs. About 90% of Shanghai Composite and Shenzhen Component Index constituents are trading above their 50-day moving averages, demonstrating strong market momentum.

This indicates concentration risk is receding and market confidence in broader sectors is strengthening.

Notably, relative to total market trading volume, the CSI 500 index's (mid-cap stocks) trading share is trending upward, while the CSI 2000's (micro-cap stocks) trading share is declining. This also reflects reduced speculative behavior in the market.