Goldman Sachs and Morgan Stanley have expressed optimism about the Chinese market, citing artificial intelligence (AI) as a significant game changer. According to a Goldman Sachs report, investors remain calm about U.S. tariff threats, while China's AI narrative is expected to attract over $200 billion in investments over the next decade. Analysts anticipate that AI will contribute to a 2.5% annual increase in earnings per share for Chinese companies.
Goldman Sachs highlights that the Chinese economy's sensitivity to U.S. tariffs has decreased due to reduced direct exports to the U.S. and improved product competitiveness. Additionally, the stability of the Chinese yuan has bolstered market confidence. Investors are hopeful for a comprehensive U.S.-China agreement that could lead to tariff reductions.
Morgan Stanley is also optimistic, citing three key factors for the Chinese market's potential growth: better-than-expected quarterly earnings for the first time in three and a half years, upward revisions in profit forecasts, and the possibility of eliminating the long-term valuation discount. The MSCI China Index components have shown an 8% net earnings surprise, ranking second globally after Japan.
Morgan Stanley has revised its earnings growth forecasts for the MSCI China Index to 7% for 2025 and 9% for 2026. The valuation of the MSCI China Index is expected to align with the MSCI Emerging Markets Index, reducing the discount. The forward price-to-earnings ratio for MSCI China has risen from 10.2 to 11.6, narrowing the discount to 6% compared to the MSCI Emerging Markets Index.
Investors are advised to exercise caution as market risks remain, and personal investment goals should be considered. This article does not constitute personal investment advice.
