Goldman Sachs: Overweight China, A-shares preferred over H-shares, raises CSI 300 target to 5,300 points

Goldman Sachs: Overweight China, A-shares preferred over H-shares, raises CSI 300 target to 5,300 points

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After experiencing intense market fluctuations, Goldman Sachs has given a clear trading direction in its latest Asia equity strategy report: Strong overweight on China, and the investment value of A-shares is significantly superior to H-shares. Goldman Sachs has sharply raised the 12-month target for the CSI 300 Index to 5300 points, implying about a 9% price increase and a 13% total USD return.

On May 8, according to Chase Wind Trading Desk, Goldman Sachs stated in its latest research report that this is a clear signal of “structural rotation”. Investors need to see through the underlying logic of the index—do not be fooled by the apparent undervaluation of offshore H-shares. Due to the MSCI China Index having as much as 37% exposure to software tech stocks, and given the current global market's strong preference for “hard tech (hardware)” and selloff of “soft tech (software)” in the macro backdrop, H-shares will face headwinds in the short term.

In contrast, A-shares not only benefit from a macro tailwind as PPI (Producer Price Index) shifts from deflation to inflation, but also offer a 4% total shareholder yield, massive excess household savings, and highly attractive funding spread for foreign capital.

Goldman Sachs states that investors’ optimal strategy is: Go long A-shares, focus on AI hardware, beneficiaries of the 14th Five-Year Plan, and energy winners with heavy assets and low depreciation (HALO).

Core Logic: Why Strong Bullish and Overweight on A-shares?

The investment logic in A-shares has become highly convincing; fundamentals, policy, and liquidity are confluencing.

Significant upward revision in earnings forecast: Market consensus has raised the 2026 earnings growth expectation for China A-shares from 16% to 23% (Goldman Sachs own forecast is 20%). The main driver for this strong rebound is the shift in China’s PPI from prolonged deflation (41 months) to moderate year-over-year inflation.Liquidity and valuation advantage: A-share valuations are currently at mid-range levels. Chinese policymakers are highly focused on capital market development. At the same time, Chinese households have ample excess savings, and with A-shares currently offering up to 4% total shareholder yield, household capital allocation motivation to equities is strong.Arbitrage opportunity for foreign investors: For overseas investors entering A-shares via swap agreements, they can currently earn a positive funding spread, giving an excellent positive asymmetric risk/reward ratio for going long A-shares.Alpha opportunity: The depth and liquidity of the A-share market provide investors broad space to pursue excess returns (Alpha) in attractive themes like “AI” and “beneficiaries of the 14th Five-Year Plan”.

Structural Traps: Why will A-shares outperform H-shares?

Although H-shares may seem more attractively valued, Goldman Sachs warns investors to pay attention to short-term traps from index composition.

The MSCI China Index dragged by “soft tech”: Data show that up to 37% of the market value in MSCI China Index is concentrated in broadly software-related tech stocks (e.g. Tencent at 14%, Alibaba at 11%, Pinduoduo at 3%, etc.).

Deadly mismatch with market preference: Current global capital preference is very clear—heavy overweight in tech hardware, sell-off in software.

Under this major trend, Goldman Sachs believes these Chinese offshore software giants must deliver extremely strong earnings (expected late 2026) to regain favor with capital.

Thus, the bank believes this underlying asset composition mismatch means H-shares are highly likely to underperform A-shares in the short term. However, Goldman Sachs also raised earnings growth forecasts for the Hong Kong market to 16%, mainly benefiting from improvements in real estate, strong capital market activity, and retail sales recovery.

Target Prices and Return Forecast: CSI 300 Heading for 5300

Based on strong upward revisions in earnings, Goldman Sachs comprehensively raised target levels for the China market:

CSI 300 Index: 12-month target raised to 5300 points, target forward P/E set at 15.0 times, with upside of about 9% from current 4877 points, and expected total USD return of 13% (including dividends).

In the valuation framework, the target price corresponds to a forward P/E of 15.0 times, which is reasonable based on macro modeling. Goldman Sachs’s macro model shows the fair forward P/E for the MXAPJ region is about 14.0 times (to March 2027), while the current actual P/E is 12.7 times, indicating valuation still has mild recovery room.

MSCI China Index (MXCN): 12-month target set at 95 points, target forward P/E of 13.0 times, and implied USD total return of 22%.

Goldman Sachs believes the depth and liquidity of the A-share market provide investors ample space to construct attractive portfolios around two core themes:

AI Theme: China is accelerating investments in AI infrastructure, computing hardware, and domestic semiconductor development. Related A-share components benefit from domestic policy support and expanding demand, with strong earnings visibility.

Beneficiaries of the 15th Five-Year Plan: Goldman Sachs has specially constructed a "15th Five-Year Plan Portfolio", focusing on strategic emerging industries supported by the plan, such as advanced manufacturing, new energy, biotechnology, etc.

Meanwhile, Goldman Sachs offers two tactical strategies highly compatible with the China market:

  • Buy HALO (heavy asset, low depreciation) assets: The market is punishing light asset/high depreciation (LAHO) companies facing AI replacement risk (e.g. software services), while rewarding heavy asset firms possessing scarce, hard-to-replicate physical capacity. This further explains why hardware-and-industrial A-shares are superior to internet-software H-shares.
  • Go long the winners from oil supply shocks: Amid the expectation of "higher for longer" energy prices, Goldman Sachs recommends going long in assets structurally benefiting from rising energy prices.

 

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The above highlights are from Chase Wind Trading Desk.

For more detailed interpretation, including real-time reading and frontline research, please join 【Chase Wind Trading Desk▪Annual Membership】

Risk Warning and DisclaimerThe market has risks, investment requires caution. This article does not constitute personal investment advice, nor does it take into account the individual investment objectives, financial status, or needs of specific users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular situation. Invest accordingly at your own responsibility. ```