7 January 2026 | 6:32AM HKT Portfolio Strategy Research CHINA 2026 China Equity Outlook: Harder earned money A slower bull market Si Fu, Ph.D. +852-2978-0200 | si.fu@gs.com Goldman Sachs (Asia) L.L.C. We forecast MSCI China and CSI300 to appreciate 20% and 12% in 2026, after key benchmarks gained 20%-30% in the past year mainly on multiple expansion. We stay Overweight both A- and H-shares in Asia. No earnings, no gains Our expected equity gains in 2026 are almost entirely earnings-driven—we see profit grow ...

US stock futures tilted lower on Wednesday, backing away from record highs as investors absorbed a promised deal to send Venezuela oil to the US and waited for fresh jobs data to lead in the all-important monthly report. Contracts on the tech-heavy Nasdaq 100 (NQ=F) slipped 0.3%, while those on the S&P 500 (ES=F) nudged down 0.1%, coming off a record-high close for the benchmark. Meanwhile, Dow Jones Industrial Average futures (YM=F) traded broadly flat after the blue-chip index closed above 49,000 for th ...

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **China Internet** sector, particularly the **Cloud & Data Centers**, **Games**, and **Mobility** sub-sectors, highlighting their performance and future outlook post-3Q results and a recent China Internet trip [1][9][10]. Core Insights and Arguments 1. **Sub-sector Preferences**: - The **Cloud & Data Centers** sub-sector has been elevated to the top preference (1) due to expected sustained AI growth momentum driven by AI training/inference demand and positive order volume outlook for data centers [1][9]. - **Games** sub-sector is now ranked 2, while **Mobility** has dropped to 3, reflecting their defensive nature and favorable pricing power amidst a soft macro backdrop [1][9]. 2. **AI and Valuation Performance**: - The China Internet sector has shown outperformance driven by AI and valuation multiples, with notable EPS growth expected from companies like **Alibaba** and **Tencent** [9][10]. - The sector's median 2026E P/E is noted at **18X**, indicating that valuation multiple expansion has been a significant driver of performance rather than profit growth [9][10]. 3. **Competitive Landscape**: - **Bytedance** is highlighted as a key competitor, particularly with its recent launch of the **Doubao Phone Assistant**, which could disrupt existing app traffic and advertising models [1][9][10]. - The potential for a new era of AI assistants in China is discussed, with implications for user engagement and privacy concerns [9][10]. 4. **Food Delivery and Quick Commerce**: - The competition in food delivery is intensifying, with **Meituan**, **Alibaba**, and **JD** expected to see adjusted EBIT declines in the upcoming quarter [9][10]. - Market share dynamics are projected to stabilize at a ratio of **5:4:1** between Meituan, Alibaba, and JD, with Meituan maintaining a leadership position [9][10]. 5. **Global Expansion**: - The report notes the increasing competition among Chinese players in the **LatAm food delivery market**, with companies like **DiDi** and **Meituan** expanding their international footprints [1][9][10]. - **JD** is also highlighted for its international expansion efforts, particularly in Europe, which could provide a re-rating opportunity for the company [9][10]. Additional Important Insights - The report emphasizes the importance of strategic pivots for eCommerce and local services players in response to Bytedance's advancements in AI and eCommerce [1][9][10]. - The potential disruption of the advertising market due to AI assistants filtering out ads is noted, indicating a shift in how users interact with apps [10]. - The report includes a detailed earnings summary and market reactions for various companies within the sector, providing insights into their performance and future outlook [12][46]. This summary encapsulates the key points discussed in the conference call, focusing on the China Internet sector's dynamics, competitive landscape, and future growth opportunities.

Investment Rating - The report maintains an "Overweight" rating for China in a regional context, favoring North Asia markets with a moderately cyclical sector emphasis [87]. Core Insights - The MSCI China index has rebounded 80% from its cycle lows in late 2022, with expectations for a sustained uptrend, forecasting key indexes to rise 30-40% and reach all-time highs by the end of 2027 [4]. - The report emphasizes strategies such as "buying the dip" and focusing on alpha through specific themes like AI, "Going Global" leaders, and small-cap A-shares [5][6]. - The pro-market policy environment is expected to remain supportive, with measures aimed at stimulating demand and enhancing shareholder returns [6][31]. - Earnings growth is projected to accelerate to low-teen levels, driven by AI advancements and anti-involution measures [38][41]. - Valuations are considered attractive, with the current forward P/E ratio at 12.9x, compared to a macro model implied P/E of 13.7x [70][71]. Summary by Sections Market Outlook - The report forecasts a 30% rise in Chinese equities over the next two years, supported by low-teen trend profit growth and moderate P/E expansion [20][18]. - The transition from a "Hope" phase to a "Growth" phase in the equity cycle is highlighted, where profit growth is expected to drive equity returns [23]. Policy Environment - The report outlines a favorable policy landscape, with ongoing monetary and fiscal support aimed at boosting domestic demand and consumption [31][27]. - Specific measures include a reduction in housing transaction taxes and increased funding for consumption initiatives [31]. Earnings and Valuation - Trend EPS growth is expected to reach 12%, bolstered by AI, anti-involution, and global expansion strategies [38][39]. - The report notes that Chinese equities are currently trading at mid-cycle valuations, with significant discounts compared to developed markets [64][67]. Capital Flows - There is a structural migration of capital towards equities, with trillions of dollars in potential asset reallocation flows anticipated [75][78]. - Foreign investor positioning in Chinese stocks has shown modest improvement, indicating a renewed interest in the market [81].

Summary of China Industrials Update Industry Overview - **Industry**: China Industrials - **Current Cycle**: The industry is in an upcycle driven by industrial upgrades and replacement cycles [6][4][3] Key Long-term Drivers - **AI Technology**: Diffusion of AI technology into intelligent manufacturing and equipment [6][4] - **Advanced Equipment Localization**: Focus on localizing advanced equipment production [6][4] - **Global Expansion**: Companies are increasingly going global [6][4] Robotics Sector - **Booming Era**: The robotics sector is entering a new booming era, with significant growth expected [6][4] - **Market Growth**: The robot industry in China is projected to double by 2028, with drones, mobile robots, and collaborative robots (cobots) leading the growth [57][66] - **Localization**: High localization rates are expected, with the ranking from high to low being drones, service robots, mobile robots, cobots, and traditional industrial robots [72][66] Subsector Insights - **Automation and Robotics**: - **Outperforming Stocks**: Inovance, Geekplus, Han's Laser, Shuanghuan, Hongfa, and Neway Valve are recommended as outperformers [6][4] - **Market Performance**: The automation market is in a mild recovery stage, with flat sales year-on-year in 9M25 compared to a decline in 2024 [26][32] - **Future Outlook**: Positive outlook for 2026-27 recovery driven by replacement demand and AI applications [27][32] - **Construction Machinery**: - **Growth Factors**: Domestic and overseas growth supported by large-scale infrastructure projects and electrification [142][138] - **Sales Performance**: Heavy-duty truck sales increased by 22% year-on-year in 10M25, but a decline is anticipated in 2026 due to front-loaded demand [143][144] - **Lithium Battery Equipment**: - **Demand Growth**: Expected growth of 54% in 2025, driven by capacity expansions and the first major replacement cycle starting in 2025 [174][181] - **Market Dynamics**: Global demand for lithium battery equipment is projected to grow at approximately 30% in 2026-27 [176][181] - **Solar Equipment**: - **Cyclical Low**: The solar equipment sector is expected to remain at a cyclical low in 2026 due to global overcapacity and single-digit growth in installations [182][186] - **Shift to Semi Equipment**: Companies are diversifying into non-solar lineups to mitigate downturns in solar demand [183][186] Financial Metrics - **Return on Equity (ROE)**: Mixed trends across subsectors, with improvements expected in automation and lithium battery equipment, while solar equipment shows erosion [19][21] - **Price-to-Earnings (P/E) Multiples**: Most subsector valuations are above the five-year median, particularly in automation and solar equipment [13][12] Conclusion - **Investment Opportunities**: The China Industrials sector presents various investment opportunities, particularly in automation, robotics, and lithium battery equipment, while caution is advised in solar equipment due to expected downturns [6][4][182]

Investment Rating - The report maintains an "Overweight" rating for China in a regional context, favoring North Asia markets with a moderately cyclical sector emphasis [85]. Core Insights - The MSCI China index has rebounded 80% from its cycle lows in late 2022, with expectations for a sustained uptrend, forecasting key indexes to rise 30-40% and reach all-time highs by the end of 2027 [2]. - The report highlights several bull market strategies, including buying on dips and focusing on alpha through specific themes such as Chinese Prominent 10, China AI, Going Global Leaders, anti-involution beneficiaries, and A-share small caps [3][88]. - A pro-market policy environment is expected to persist, with measures aimed at stimulating demand and enhancing shareholder returns, alongside easing industry regulations [4][34]. Summary by Sections Market Outlook - The report forecasts a 30% rise in Chinese equities over the next two years, driven by low-teen trend profit growth and moderate PE expansion [16][35]. - Earnings growth is anticipated to accelerate to 12%, supported by AI advancements, anti-involution measures, and the "Going Global" strategy [35]. Valuation and Investment Themes - Current valuations are seen as attractive, with the right tail from AI and liquidity overshoot priced at mid-range index PEs, and significant discounts to global equities [7][62]. - The report identifies key themes for investment, including AI, anti-involution, and "Going Global," which are expected to drive profit reflation and enhance competitiveness [44][47]. Capital Flows and Investor Sentiment - There is a structural migration of Chinese capital towards equities, with trillions of dollars in potential asset reallocation flows expected to support this trend [76][79]. - Despite conservative positioning among foreign investors, retail sentiment remains subdued compared to previous euphoric levels, indicating potential for future growth [82][79]. Sector Performance - The report emphasizes that alpha opportunities are abundant along sector and thematic axes, with notable performance in themes such as Going Global Leaders and China AI [93][96].

Summary of the Conference Call on China Strategy Industry Overview - The focus is on the Chinese equity market, specifically the MSCI China index, which has bounced back 80% from its cycle lows in late 2022, despite facing four significant drawdowns [1][10][26]. Core Points and Arguments 1. **Market Outlook**: A sustained uptrend for China equities is anticipated, with key indexes expected to rise approximately 30% by the end of 2027, driven by a 12% trend profit growth and a 5-10% potential re-rating [1][11][12]. 2. **Bull Market Mentality**: Investors are encouraged to shift their mindset from selling during rallies to buying on dips, as the bull market unfolds. An alpha-centric approach is recommended, focusing on specific themes such as Chinese Prominent 10, AI, and small-cap A-shares [3][20]. 3. **Policy Environment**: The pro-market policy window is open, with several measures taken to support equity markets, including demand-side stimulus and easing regulations for private enterprises (POEs) [6][13][27]. 4. **Growth Drivers**: Key growth themes include advancements in AI, the anti-involution campaign, and the trend of Chinese companies going global, which are expected to enhance earnings growth [14][18]. 5. **Valuation Metrics**: Current valuations are considered inexpensive, with index PEs at mid-cycle levels and significant discounts to global equities. The fair multiple for H- and A-shares is projected to rise, indicating that investors are not overpaying for potential growth [15][27]. 6. **Capital Flows**: There is a structural migration of capital towards equities, with an estimated Rmb6 trillion potential asset reallocation from other sectors to the stock market in the coming years [18][28]. 7. **Risks and Corrections**: While the outlook is positive, cyclical macro slowdowns and external risks may lead to profit-taking and corrections. However, unless these risks intensify, the recommendation is to stay invested and accumulate during corrections [19][20]. Additional Important Insights - **Historical Context**: The Chinese equity market has experienced significant volatility, with a notable downturn from early 2021 to late 2022, during which over US$6 trillion was lost. The recovery has been marked by four major corrections averaging 22% [10][26]. - **Regulatory Changes**: The easing of regulations on POEs is seen as a critical factor in reviving investor confidence and stimulating growth in the stock market, where POEs represent 60% of the total market capitalization [13][27]. - **Shareholder Returns**: Record-high dividends and buybacks are projected, with yields expected to reach approximately 3%-3.3% of current prices by 2025/2026 [28][36]. This summary encapsulates the key insights and projections regarding the Chinese equity market, highlighting the anticipated growth, supportive policies, and the importance of strategic investment approaches.

Summary of the Conference Call Transcript Industry Overview - The focus is on the **Chinese exports** industry and its evolution since joining the WTO in 2001, highlighting a shift from low-cost manufacturing to high-value-added products and services [1][7][8]. Key Points and Arguments Evolution of Chinese Exports - The narrative of China as merely a low-cost manufacturer is outdated; it is now gaining market share in high-end manufacturing and exporting services, intellectual property, and culture [1][2][7]. - China's share in global manufacturing value-added has increased from **11% in 2001 to 33% in 2024**, contributing to an **11% CAGR in GDP** during the same period [7]. Going Global Strategy - Chinese exporters are diversifying their markets, with exports to non-US countries growing at an estimated **7.5% CAGR since 2018**, while exports to the US have declined by **0.6% annually** [8]. - The competitive Renminbi (CNY) is expected to support exporters, as it remains undervalued, providing a competitive edge [2][23]. - Chinese companies dominate global supply chains, particularly in critical materials and advanced manufacturing, with cost advantages allowing them to offer products at **15% to 60% discounts** compared to global competitors [2][23]. Financial Performance and Risks - Overseas revenue for Chinese listed companies has increased from **14% in 2018 to 16% currently**, with sectors like Auto, Retailing, and Capital Goods leading this growth [3][38]. - Tariff risks from trading partners could impact overseas margins but are unlikely to derail the global expansion trajectory, as evidenced during the US-China trade war [3][40]. - The average gross margin for Chinese exporters in overseas markets is approximately **20% higher** than in domestic markets [39]. Implications of Going Global - The gap between GDP and GNP may widen as more profits are derived from overseas markets [63]. - There is a rising need for financing overseas investments, with increased issuance of Dim Sum bonds and capital raised through Hong Kong IPOs [71]. - A portfolio of **25 GS-Buy-rated companies** has been identified as well-positioned to capitalize on global opportunities, generating an average of **34% of their revenues overseas** [4][76]. Market Dynamics - The **Belt and Road Initiative** has significantly influenced China's trade patterns, with trade with Belt and Road countries now accounting for **47% of total trades**, up from **32% in 2005** [8]. - Chinese companies are increasingly exporting services, with a notable shift from traditional goods exports to services and overseas direct investment (ODI) [8][13]. Future Projections - It is projected that overseas revenue for Chinese companies could reach **19.2% by 2028**, still below the **53%** and **48%** averages for developed and emerging markets, respectively [42][50]. - The global expansion is expected to boost earnings growth by approximately **1.5% annually** over the next three years, despite potential tariff impacts [60]. Additional Important Insights - Cultural proximity, with over **50 million ethnic Chinese** residing outside the mainland, could facilitate global expansion by providing local knowledge and insights [2][30]. - The competitive landscape is shifting, with Chinese products becoming more technologically complex and quality-competitive, leading to a rapid global adoption of Chinese brands [23][35]. This summary encapsulates the key insights from the conference call, focusing on the evolution of the Chinese exports industry, the strategic implications of going global, and the financial performance of Chinese companies in international markets.

Core Insights - The conference "Integration and Development: Co-creating New Value in Wealth Management" was held in Beijing, focusing on global asset allocation and social responsibility initiatives [2][4] - CITIC Group's wealth management scale is approximately 31 trillion yuan, with asset management reaching 9.3 trillion yuan, serving over 200 million individual and corporate clients [4][6] - The Chinese asset management market has surpassed 170 trillion yuan, becoming the second-largest globally, with an average annual growth rate of 8% over the past five years [6] Group 1 - The conference was attended by over 200 representatives from leading asset management institutions, emphasizing collaboration in global asset allocation [2] - CITIC Group aims to enhance professional capabilities and expand global perspectives in wealth management through partnerships with top asset management firms [4] - The "Xincheng Growth" charity platform was launched, with a goal to donate over 10 million yuan by 2025, reflecting CITIC's commitment to social responsibility [2] Group 2 - Wealth management institutions are shifting from single asset allocation to diversified strategies, leveraging big data and AI technologies [5] - Investment opportunities are emerging in sectors such as green economy, healthcare, and domestic substitution, indicating a healthy ecosystem for Chinese stocks and bonds [5] - As of June 2025, CITIC Bank's personal wealth management scale is nearly 5 trillion yuan, ranking second among peers, while CITIC Securities leads the brokerage industry with a market share of 12.8% [6]

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **China A-share market** and its liquidity dynamics, particularly in relation to macroeconomic indicators and investment flows. Core Insights and Arguments 1. **Liquidity Indicators**: A key macro indicator, the M2-TSF growth spread, is currently positive, suggesting an improving liquidity backdrop for capital markets. This spread has been climbing since March 2025 and reached zero in August 2025, indicating potential for sustained equity market strengthening [1][2][19]. 2. **Historical Context**: The positive growth spread has historically preceded bull markets in A-shares, notably in 2005 and 2015. The current environment shows a similar pattern, although previous concerns over geopolitical tensions and domestic property issues diverted liquidity into bonds [2]. 3. **Insurance Sector Dynamics**: The "Big Four" insurers in China (Ping An, China Life, China Pacific, New China Life) reported a significant increase in their other comprehensive income (OCI) accounts, growing by CNY40.82 billion in the first half of 2025. This indicates a shift towards high-dividend central SOEs, making the banking sector's current dividend yield attractive [3][14]. 4. **Equity Holdings Growth**: Despite the growth in OCI accounts, many small and medium-sized insurers have not significantly increased their equity holdings. The overall allocation to equity and fund assets in the insurance industry has only recovered to 13.1%, below historical peaks [4][20]. 5. **Wealth Management Products (WMPs)**: The WMP market, valued at CNY30 trillion, is seen as a more probable source of market liquidity compared to the CNY160 trillion in deposits. A sustained A-share rally could lead to a reallocation of WMPs towards equities, with potential inflows estimated at CNY700 billion if allocations return to previous peaks [5][8][29]. 6. **Passive Investing Trends**: Passive funds have emerged as the primary channel for off-market capital inflows, with total shares in equity ETFs reaching 2.01 trillion as of September 2025. This shift is altering the pricing ecology of the A-share market, favoring index heavyweights [9][23]. Additional Important Insights 1. **Investment Strategy**: The report recommends that investors focus on index heavyweights with solid fundamentals while being cautious of market volatility. A long-term strategy suggests a shift from dividend-focused investments towards technology and growth sectors [10][11]. 2. **Emerging Themes**: Opportunities are identified in sectors such as **Chinese new consumption** and **high-end smart manufacturing**, with a focus on companies that can leverage global market trends [12]. 3. **Market Risks**: Potential risks include a broad market downturn, increased volatility, and economic slowdown, which could impact the liquidity environment and investor sentiment [11]. This summary encapsulates the key points from the conference call, highlighting the dynamics of the China A-share market, liquidity flows, and investment strategies moving forward.