Goldman Sachs has improved its outlook for Chinese stocks. What is the reason for its optimism?

Goldman Sachs has revised its expectations for the Chinese stock market - and now forecasts stronger growth. Analysts at the investment bank have raised their target benchmark for the MSCI China index, although it has already added more than 25% since the start of 2025. Goldman Sachs is counting on the imminent conclusion of a trade agreement between the U.S. and China, the easing of Beijing's pressure on the private sector and the strengthening of the yuan.

Goldman Sachs has improved its forecast on Chinese stocks: now the investment bank expects MSCI China to rise to 90 points on a one-year horizon against the previous target of 85 points. The potential for growth is 11% from the level at which the index ended last week, reports Bloomberg.

Goldman Sachs economist Kinger Lau explained the revision of the forecast by the increased chances of a U.S. trade agreement with China, which "could be an event that eliminates market imbalances for Chinese stocks". Additional supporting factors include the gradual appreciation of the yuan, reduced regulatory risks for the private sector and favorable liquidity conditions in the market, Lau noted.

Given that the MSCI China index has added more than 25% since the beginning of 2025 and further growth is associated with risks, Goldman Sachs recommended clients to bet not on the entire market, but on individual stocks. The bank upgraded the investment rating of the insurance and commodities sectors to Overweight ("above market", corresponding to the recommendation to buy shares), while downgrading securities of banks and developers.

On July 28, mainland Chinese index Shanghai Composite rose 0.1%, Shenzhen Component rose 0.4%. Today, representatives of the United States and China are discussing in Stockholm the extension of the trade truce, which expires in mid-August. The United States' trade agreements with the European Union and several Asian countries, including Japan, have boosted investors' hopes that China will also manage to reach a deal with the U.S., Writes Bloomberg. 

Investors also expect the meeting of the Chinese Politburo in late July, which will set the vector of Beijing's economic policy for the second half of the year. Although the Chinese authorities are not in a hurry with aggressive measures to stimulate the economy, "certain support measures are likely to be implemented closer to the end of this year" - amid the emerging weakness in the economy, Goldman noted.

In May, Goldman strategists returned the MSCI China forecast to the values that were before Trump announced the duties in early April. At that time, the bank referred to the stronger-than-expected reduction of duties by both countries. Since then, the Chinese index has added another almost 8%.

This article was AI-translated and verified by a human editor