Goldman Sachs remains optimistic about Chinese A-shares and H-shares, driven by AI advancements and liquidity support. Analysts suggest that H-shares will benefit from AI progress, while A-shares have room to catch up, potentially narrowing the performance gap. With global funds increasing investments in China, H-shares may remain preferred, although A-shares could see short-term improvement.
Since January, the MSCI China Index has risen by 26%, led by a 31% increase in the Hang Seng Tech Index, while A-shares have seen a modest 7% rise. Goldman Sachs notes a 95% probability of market leadership reversal when A-share and H-share returns differ by over 15%. The A-share valuation premium has narrowed from 34% to 14% over three months, indicating a potential 10% upside if it returns to the past year's average.
Goldman expects a 2% excess return for A-shares in the next three months, supported by valuation advantages and policy expectations. Historically, A-share and H-share relative returns fluctuate within ±10%, with reversals likely when exceeding this range. The MSCI China and CSI300 P/E ratios stand at 11.5 and 13.1, respectively.
Supportive domestic policies and the upcoming "Two Sessions" could further boost A-share performance. Global funds are increasing their China exposure, favoring H-shares, while domestic retail investor participation may support A-shares.
Recent trading shows strong market sentiment, with over 3,200 stocks rising. Alibaba's earnings exceeded expectations, boosting tech stocks. Positive factors like improved business environments and AI investments are driving the market, with global funds rebalancing between US and Chinese equities.
