Goldman Sachs released a research report stating that it expects the MSCI China Index and the CSI 300 Index to rise by 20% and 12% respectively this year, maintaining an "Overweight" rating on both A-shares and H-shares. The bank believes this year's stock market gains will be entirely driven by earnings growth; supported by AI, the "going global" strategy, and anti-involution policies, it forecasts that profit growth will accelerate from 4% in 2025 to 14% in both 2026 and 2027. Current market valuations are deemed reasonable, with potential upside coming from AI monetization, policy stimulus, and liquidity exceeding expectations. Regarding liquidity, the bank predicts that net inflows through the Southbound Stock Connect could reach $200 billion (approximately HK$1.558 trillion, compared to net inflows of 1.4 trillion yuan in 2025), setting another historical record. Domestic capital reallocation flows may also accelerate, potentially bringing about 3 trillion yuan in incremental funds to the stock market. Total dividends and share buybacks this year could approach 4 trillion yuan. Long-term foreign investors might reduce their underweight positions in Chinese stocks, implying potential buying of around $10 billion (approximately HK$77.9 billion). Furthermore, IPO fundraising this year could exceed $100 billion (approximately HK$7.79 trillion), an 80% year-on-year increase, equivalent to 0.5% of the current market capitalization. The report also points out that regarding mainland retail investors, they currently remain quite distant from their efficient frontier, with real estate and cash accounting for 54% and 28% of their asset allocation respectively, while stocks comprise only 11%. As real interest rates decline and the high expected returns from stocks become more attractive, this could drive trillions of dollars from cash holdings into the equity markets. Sustained growth in disposable income and financial capital also implies that over 14 trillion yuan in "new money" will be seeking investment opportunities annually. In terms of sectors, the bank remains bullish on the AI theme and has upgraded its rating on the hardware sector to "Overweight," aligning it with the internet sector. Within the consumer sector, it continues to favor services over goods, while also focusing on the materials industry. The bank maintains its "Overweight" rating on the insurance sector.
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