Goldman Sachs projects that the widespread adoption of AI technologies could significantly enhance the earnings and valuations of Chinese companies over the next decade. The firm estimates that AI could boost annual earnings per share (EPS) for Chinese companies by 2.5%, potentially increasing the fair valuation of the Chinese stock market by 15-20%. This could lead to over $200 billion in capital inflows, partially mitigating the current underweight position of global asset managers.
Recent advancements in AI models like DeepSeek-R1 are reshaping the narrative around Chinese equities. Over the past month, DeepSeek has contributed to a 27% rise in the Hang Seng Tech Index and a 19% increase in the MSCI China Index. In contrast, since the launch of ChatGPT in November 2022, U.S. markets have surged by 50%, adding $13 trillion in market value.
Goldman Sachs has raised its 12-month target for the MSCI China and CSI 300 indices to 85 and 4700, respectively, indicating potential gains of 16% and 19%. AI is expected to enhance Chinese corporate profitability through three main avenues: productivity gains, cost optimization, and new revenue opportunities. AI could lead to a cumulative productivity increase of 9% over the next decade, reduce labor costs by 3%, and create new business models, boosting annual revenues by 1%.
Inspired by the U.S. experience, where investors bought $660 billion in stocks last year, China's AI advancements are attracting global attention. Hedge funds are increasing their exposure to Chinese stocks, and southern investors are actively purchasing Hong Kong-listed Chinese tech shares. If Chinese market capitalization grows by $3 trillion in the next year, AI could attract $200 billion in net buying, including $104 billion from southern funds.
