Goldman Sachs Increases MSCI China Target as DeepSeek Drives AI Optimism
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Goldman Sachs has significantly raised its outlook for Chinese equities, forecasting continued gains as the country’s artificial intelligence (AI) sector, particularly DeepSeek, reshapes investor sentiment. The investment bank’s strategists, led by Kinger Lau, now anticipate the MSCI China Index reaching 85 within the next 12 months, an upgrade from the previous target of 75. This adjustment implies a potential 16% increase from Friday’s closing value, reinforcing confidence in the ongoing bull market. Additionally, Goldman revised its projection for the CSI 300 Index, raising it from 4,600 to 4,700.
DeepSeek, an emerging AI model from China, has played a pivotal role in altering perceptions about the nation’s technology sector, spurring renewed investor enthusiasm. According to Goldman Sachs’ latest research note, AI adoption is projected to enhance Chinese corporate earnings-per-share (EPS) by approximately 2.5% annually over the next decade, further supporting market optimism.
Wall Street Analysts Turn Bullish on Chinese Stocks
The positive shift in market sentiment extends beyond Goldman Sachs, with other major financial institutions also expressing confidence in Chinese equities. In the past week, analysts from Morgan Stanley, JPMorgan Chase & Co., and UBS Group AG have issued optimistic reports, while Man Group’s head of multi-strategy equities highlighted Chinese stocks as one of the most compelling investment opportunities of the year.
Goldman Sachs’ strategists emphasized that the latest technological advancements in China are driven by micro-level innovations rather than broad policy directives, potentially leading to more sustainable market growth. This perspective contrasts with previous market rallies, such as the surge following China’s post-pandemic economic reopening in late 2022, which ultimately lost momentum within months.
AI Innovation and Government Signals Shape Market Trends
Chinese equities saw a strong start to the week, with the MSCI China Index rising as much as 2% before trimming its gains. Investors are now closely monitoring a potential high-profile meeting between President Xi Jinping and Alibaba Group Holding Ltd.’s co-founder Jack Ma, viewing it as a potential indicator of government support for the private sector. Such developments could serve as additional catalysts for market growth.
Meanwhile, China’s 30-year bond futures have declined for three consecutive days, hitting their lowest levels since late January, as capital shifts into equities and money market liquidity tightens. In the cash market, the 10-year government bond yield increased to 1.67%, reflecting broader economic trends.
Balancing AI Momentum with Policy Support
Despite the growing optimism, some market observers remain cautious about whether AI-driven advancements can translate into sustainable profit growth for Chinese corporations. Historically, China’s stock market has experienced multiple short-lived rallies, making investors wary of long-term stability.
Goldman Sachs has maintained a bullish stance on Chinese stocks, often countering broader market pessimism. In May of last year, the firm raised its MSCI China Index target from 60 to 70, though the index initially declined before rebounding in late September. At the beginning of 2025, Goldman forecasted a 20% rise in Chinese equities by year-end, a prediction that appears increasingly likely given recent developments.
Strategists remain focused on data and cloud computing, software, and AI application themes as key investment areas. While the AI-driven capital expenditure cycle is stabilizing, monetization efforts are gaining traction. However, they also stress that China still requires decisive policy interventions to address structural economic challenges and ensure sustained equity market gains. As AI technology continues to evolve, its impact on China’s economic landscape will remain a critical factor for investors worldwide.
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