Goldman: AI Could Add $200B to China—But Wait
Fiscal Stimulus: The Key to Sustaining China’s Market Rebound
Chinese stocks are regaining momentum, fueled by a transformative artificial intelligence (AI) breakthrough that could draw up to $200 billion in investor inflows this year. Goldman Sachs strategists, led by Kinger Lau, have raised their target for China’s CSI 300 index from 4,600 to 4,700, signaling a potential 19% price return.
Goldman estimates that widespread AI adoption could enhance Chinese earnings per share by 2.5% annually over the next decade. This technological shift, coupled with renewed investor confidence, could elevate the fair value of Chinese equities by 15-20%, triggering substantial capital inflows.
Despite this optimism, analysts stress that AI alone cannot sustain long-term growth. Strong fiscal stimulus is essential to address macroeconomic challenges and drive sustainable equity gains. Specifically, China must implement policies to counter tariff-related headwinds, stimulate domestic demand, curb deflationary pressures, and correct economic imbalances—all crucial for bolstering corporate earnings and extending market gains.
The CSI 300 rose 14% last year after three years of losses, compared to a 23% gain in the S&P 500. Meanwhile, the Hang Seng Tech Index, home to many of China’s leading AI and tech firms, has surged 23% year-to-date, with an ETF tracking the index up 19% in 2024—the first annual gain in four years.
Goldman Sachs identifies strong potential for later-cycle AI beneficiaries, favoring companies in data, cloud computing, software, and applications as AI monetization and practical use cases expand. Their analysis reveals a valuation gap between U.S. and Chinese AI stocks, drawing comparisons between major firms like Apple and Tencent.
Since ChatGPT’s launch in late 2022, U.S. stocks have surged 50%, adding $13 trillion in market capitalization. Over the past year, U.S. and global investors have funneled $660 billion into U.S. equities, fueling double-digit gains in the S&P 500 and Nasdaq Composite and generating over $10 trillion in market value.
Optimism surrounding DeepSeek is now driving significant inflows into Chinese stocks. If Chinese firms can grow their market cap by $3 trillion in the next year, AI-related investments could contribute up to $200 billion in global net buying, potentially reversing the underweight positioning of Chinese equities among asset managers.
However, Goldman Sachs warns of risks to China’s AI-driven growth, including regulatory uncertainties, data privacy concerns, national security considerations, disinflationary pressures, and potential Western tech export restrictions. While these risks are currently overshadowed by AI enthusiasm, they remain crucial factors for investors to monitor moving forward.
