Recently, Goldman Sachs made waves with its latest forecast for the Chinese stock markets, suggesting a noteworthy recovery on the horizon.

According to their recent report, the MSCI China Index and the CSI 300 Index are expected to rise by approximately 20% by the end of 2025. This insight comes with a recommendation for investors to continue favoring A-shares and offshore Chinese stocks, owing to the promising risk-to-return ratio that these markets presentIn prior analyses, Goldman Sachs had projected a more conservative increase of 15% and 13% for the same indices by 2025, respectively.

In a similar vein, JPMorgan also highlighted the potential for a turnaround in the Chinese stock market around late January, correlating with the incoming U.S

administration's policies toward China and China's subsequent responsesNotably, Bank of America's renowned strategist Michael Hartnett believes that a downturn in the U.Sstock market will compel the new government to make concessions on tariffs, thereby presenting February or March as an opportune time to invest in U.STreasury bonds and stocks from China, the U.K., and emerging markets.

Additionally, on January 13, Morgan Stanley upgraded its ratings for several major Chinese airlinesChina Southern Airlines and China Eastern Airlines now hold a rating of equal weight with target prices of 7.87 and 4.66 yuan, respectively, while Air China also received a similar upgrade.

As we stand on the precipice of market shifts, investors are particularly focused on whether the recent adjustments in the A-share market signify an end to the current downtrend.

Insight from Goldman Sachs

Goldman Sachs’ latest prognostications confirm the anticipated 20% rise in both the MSCI China Index and the CSI 300 Index by 2025. They highlight that a compelling risk-return ratio supports their advice to maintain an overweight position in A-shares and offshore Chinese equities.

Specifically, Goldman analysts forecast that the MSCI China Index will rise to around 75 points and the CSI 300 Index will approach 4600 points by the end of 2025, indicating around 21% potential upside for both indices.

Chief China equity strategist at Goldman Sachs, Liu Jinjin, remarked that despite a less-than-ideal start to the new year, the prospects look stable with a forecasted earnings growth of around 7% to 10%, modest valuation improvements, and comparatively low investor positioning which together enhance the appeal of risk-reward in Chinese equities.

The report explains that amid record cash distributions and declining interest rates, shareholder returns are poised to remain frontrunners in market performances.

Looking back at previous forecasts, in mid-November 2024, Liu’s team had projected a rise of 15% for the MSCI China Index and 13% for the CSI 300 Index by 2025. The intertwining factors of projected earnings growth, moderate valuation increases, and a generally low investor profile collectively create favorable conditions for Chinese equities.

Goldman Sachs continues to advocate for an overweight position in A-shares and H-shares while tactically favoring the former due to its heightened sensitivity to policy changes and capital flow dynamics.

On a macroeconomic scale, they believe that a series of incremental policies would aid in steering China’s growth model away from trade and investment dominance towards one focused on domestic demand and consumption

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They anticipate consumer growth to rebound from 3.8% in 2024 to 5% in 2025, driven primarily by targeted fiscal expenditure and subsidies in consumption-driven sectors.

From a micro perspective, Goldman Sachs suggests that policies aimed at the stock market will largely center around themes of “emphasizing shareholder returns,” “investor protection,” and “enhancing the quality of listed companies” throughout 2025. Policy adjustments seen in 2024 have already helped reduce tail risks in the Chinese stock markets, prompting a reevaluation in stock valuations.

For 2025, they project earnings growth of 7% for the MSCI China Index and 10% for the CSI 300 Index, aided by implementing these favorable policies

Timing the Turnaround

JPMorgan’s latest report echoed similar sentiments, predicting a turnaround in the Chinese stock markets is expected around late January due to clarity emerging from the incoming U.Spresident's China policy and China's reactionsKey indicators to watch include Lunar New Year consumption, the macroeconomic data set to be released in mid-March, corporate earnings results, and the next wave of stimulus policies.

The report outlined three key bullish opportunities for 2025 yet to materialize: a significant increase in stock allocations by Chinese households, a thawing of relations between China and the U.S., and the potential introduction of large-scale income and consumption stimulus policies.

Previously, JPMorgan’s chief Asia and China equity strategist, Liu Mingdi, set a target point of 67 for the MSCI China Index and 4200 for the CSI 300 Index for the end of 2025.

Hartnett from Bank of America is of the opinion that a downturn in the U.S

stock market will incentivize the new administration to makes concessions concerning tariffsFebruary or March could mark an advantageous juncture to bet on U.STreasuries and stocks in China, the U.K., and emerging markets, effectively hedging against the risks of U.Sstocks.

Regarding the Hong Kong market, HSBC's analysts posit that the Hang Seng Index could climb by 21% in 2025, raising their target for the index from 8610 to 8800 points while upgrading the stock market rating from neutral to overweight.

Future Market Dynamics

On the ground, January 13 marked a rebound for A-shares that saw the ChiNext Index record over a 1% increase at one point, though it later experienced fluctuations

By day's end, the Shanghai Composite Index had decreased by 0.24%, while the Shenzhen Component Index remained flat, and the ChiNext Index closed with a gain of 0.36%. The total trading volume across both markets was 966.4 billion yuan, the first drop below the trillion yuan threshold since September 25, 2024.

At this juncture, investors remain highly attentive to whether this round of adjustments in the A-share market signifies a concluded phase or a precursor to renewed upward momentum.

In a recent brokerage morning meeting, Huatai Securities suggested that while A-shares experienced some adjustments last week, they currently navigate a phase of uncertainty driven by both domestic and international variables

Given an increasing inflation risk abroad, a slower pace of interest rate cuts from the Federal Reserve may elongate the response time of domestic monetary policies, stoking concerns of market retracement while indicating potential recovery in stock indices post the Lunar New Year.

Zhongtai Securities believes the current sharp downturn in indices is nearing its conclusionAmid an 'interregnum' of tariffs and resilience in the housing market prior to the Lunar New Year, they estimate chances for a rebound remain favorable.

Regarding the outlook for the Hong Kong market, China Galaxy Securities affirmed that following the implementation of a comprehensive growth-stimulating consumer policy framework, positive effects would gradually surface, ultimately benefiting the fundamental aspects of Hong Kong's stock market