Goldman says AI could be a $200 billion game changer for China markets. But here’s why investors shouldn’t rush in.Fiscal stimulus will be needed for sustainable gains
By
Barbara Kollmeyer
Last Updated: Feb. 17, 2025 at 1:06 p.m. ET
First Published: Feb. 17, 2025 at 7:19 a.m. ET
 Goldman Sachs strategists say China markets could regain favor among investors excited by China’s emerging role in the AI story. Photo: Anthony Kwan/Getty Images
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Chinese stocks appear to be emerging from their postpandemic slumber thanks to an artificial-intelligence game changer that could help lure in $200 billion of investor money this year.
That’s according to Goldman Sachs strategists, who on Monday bumped their target on China’s CSI 300 index
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, up 0.3% so far this year, to 4,700 from 4,600, which they say implies a 19% price return from current levels.
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“We estimate widespread AI adoption could boost Chinese [earnings per share] by 2.5% [per] year over the next decade. Improving growth prospects and perhaps a confidence boost could also raise the fair value of China [stocks] by 15-20%, and potentially usher in over US$200 billion of portfolio inflows,” said a team of strategists led by Kinger Lau.
The CSI 300 returned 14% last year after three losing postpandemic years.
But they are cautious. “As promising as AI could be to China’s growth trajectory, we believe forceful policy stimulus is still required to address deep-rooted macro challenges and drive sustainable equity gains.”
Specifically, they say China needs fiscal stimulus to soften headwind tariffs, help drive a rotation from external to domestic demand, “circuit-break the disinflationary spiral,” and address other macro imbalances, all of which will support earnings and help lengthen a rally.
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The CSI 300 returned 14% last year, compared with a 23% gain for the S&P 500, after three losing postpandemic years. The Hang Seng Tech Index
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, where Goldman sees some of the highest tech and AI exposure, is up 23% so far this year. An ETF tracking the index
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gained 19% in 2024, the first winning year in four.
“Similar to the U.S. cycle, Chinese semi and AI [infrastructure] have already outperformed, pointing to strong potential for later-cycle beneficiaries to catch up,” said Lau and his team, who prefer data and cloud, software and application companies, as the AI cycle moderates but monetization and user-case creation picks up.
Their table, below, shows the China vs. U.S. discounts when it comes to AI stocks, comparing companies such as Apple and Tencent:
While China stocks have lagged in recent years, since ChatGPT was launched in November 2022, U.S. stocks have surged 50%, adding $13 trillion in market cap, the strategists say. Data shows U.S. and international investors have bought around $660 billion in U.S. equities over the past year, driving double-digit gains for the S&P 500
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and Nasdaq Composite
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, and creating more than $10 trillion in market capitalization, according to Lau and his colleagues.
Optimism over DeepSeek is starting to drive “meaningful inflows” to China stocks, and if companies can grow their aggregate market cap by $3 trillion in the next 12 months, then the AI story could bring in up to $200 billion in net buying globally, they say. That would help unwind conservative and underweight equity allocations to China stocks by global asset managers.
Goldman offers a bit more caution for enthusiastic investors, noting risks for China’s AI story around usage and data privacy, regulation, national security, disinflationary pressures and potential tech export controls by western governments?
These risks are likely “not under the spotlight at present when investors are still digesting the upside surprises from DeepSeek, and prevailing equity valuations are still inexpensive,” say strategists.
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