Foreign capital continues to be bullish on Chinese assets!

Foreign Institutions have once again issued a clear Call signal. In a report released on March 26, Goldman Sachs' strategists stated that China has returned to investors' attention, and the market still has room for further growth. Goldman Sachs noted that international investors' interest in and participation in Chinese stocks have reached their highest level in the past four years.

Recently, Morgan Stanley raised the Target Price for the Chinese stock market again, believing that there is still room for upward valuation against the backdrop of improving profit prospects. This is also the second time within less than a month and a half that Morgan Stanley has adjusted its forecast for the Chinese stock market.

Goldman Sachs: There is still room for further gains in the Chinese stock market.

Goldman Sachs' strategists expressed optimism about Chinese assets. In a report on Wednesday, they wrote: "China has returned to investors' view, and the market still has further room for gains." After meeting with investors from Asia, the USA, and Europe over the past month, they found that the interest and level of participation in Chinese stocks by investors are the highest since the market reached its historical peak in early 2021.

Goldman Sachs believes that at least in terms of investor interest, China has returned to their sights, mainly due to several reasons: the strong gains of Chinese stocks year-to-date have surprised many investors, with the MSCI Chinese Index and Hang Seng TECH Index having increased by 16% and 23% respectively, significantly outperforming Developed Markets and Emerging Markets; the emergence of DeepSeek has changed investors' views on the prospects of Chinese technology and the Chinese stock market, bringing optimistic growth driven by bottom-up, innovation-driven investment philosophies; Global Equity funds are actively seeking other investment options outside the USA stock market, with China being one potential choice due to its liquidity, valuation, and diversification advantages.

Goldman Sachs stated that over the past few months, Asia-focused investors have increased their allocation to Chinese stocks, but participation from global Funds remains weak. However, global Funds have greater motivation to return to China, but the policy risks in the USA still hold them back.

Goldman Sachs pointed out that based on macro, policy, and micro reasons, stock investors seem to be more relaxed about concerns over US tariffs. Some investors believe that compared to "Trade War 1.0," China now seems better able to cope with adverse external demand factors due to the reduction in direct exports to the USA and improvements in product competitiveness. Moreover, China was previously the main target of US tariffs, but during Trump's second term, most American trading partners may face higher tariffs. At the same time, despite facing tariff turbulence, the RMB Exchange Rates have remained largely stable, and there is a possibility that the USA and China may reach a comprehensive agreement in the negotiations in the coming months, leading to tariff reductions.

Additionally, Goldman Sachs mentioned that most investors agree that China's AI technology is a "game changer", although questions regarding the potential benefits of AI have emerged. There are signs of a recovery in some economic sectors in China, and future policy measures will be key, focusing on easing the sustainability of the cycle.

In February of this year, Goldman Sachs raised the 12-month target for the MSCI Chinese Index from 75 points to 85 points, and the target for the CSI 300 Index from 4600 points to 4700 points. Goldman Sachs stated at that time that the widespread adoption of AI over the next decade could increase the EPS of Chinese Stocks by 2.5% annually. The improvement in growth prospects and increased confidence may raise the fair value of Chinese Stocks by 15% to 20%, potentially bringing in over 200 billion dollars in investment inflow.

Morgan Stanley has once again raised the target price for the Chinese stock market.

Recently, Morgan Stanley, citing profitability, raised the target price for the Chinese stock market again. Morgan Stanley strategists Laura Wang and Jonathan Garner pointed out in a report: "The MSCI Chinese Index has finally turned a corner, with expectations of surpassing profit expectations, while the downward revision of profit expectations is close to a turning point." They further stated: "The valuation of the Chinese stock market should align with the MSCI Emerging Markets Index, moving away from long-term discounts."

The aforementioned strategists have raised the targets for the Hang Seng Index, Hang Seng H-Share Index, MSCI Chinese Index, and CSI 300 Index to 25,800 points, 9,500 points, 83 points, and 4,220 points respectively by the end of 2025, indicating an upside of 9%, 9%, 9%, and 8% compared to current price levels. Previously, Morgan Stanley had set targets of 24,000 points, 8,600 points, 77 points, and 4,200 points for these indices.

Morgan Stanley stated that the main driver behind the increase in the target price is the moderate adjustment of earnings growth forecasts. The earnings forecasts for the MSCI Chinese Index in 2025 and 2026 are 7% and 9%, respectively, based on the assumption that there is further room for valuation reassessment in Chinese stocks. It is expected that by the end of the year, valuations may rise to align with the MSCI Emerging Markets Index, which is a PE of 12.5 times over the next 12 months.projected PEtwelve point five times.

Morgan Stanley noted that the MSCI Chinese Index reported robust net growth of 8% in both the number of companies and weighted earnings in the fourth quarter of last year, marking the first time in three and a half years. Morgan Stanley recommends that investors increase their holdings in A-shares and "buy quality stocks on dips."

The MSCI Chinese Index has risen over 16% year-to-date, while global stock indices have only slightly increased by 1%. Chinese technology stocks have performed particularly well, benefiting from the AI potential demonstrated by DeepSeek, as well as strong government support for the technology sector.

This is Morgan Stanley's second time this year adjusting the target for Chinese stock indices. In February, Morgan Stanley's China strategy team, led by analyst Laura Wang, published an article stating that they no longer held a bearish view on the Chinese stock market, adopting a more optimistic perspective, expecting that the upward trend of the Chinese stock market will be more sustainable driven by technical breakthroughs. The report at that time stated that the Chinese stock market (especially the offshore market) has finally undergone a structural qualitative change, making people more convinced than the rebound in September last year that the recent performance improvement of the MSCI Chinese Index can be sustained.

The report states that the rise of DeepSeek demonstrates that China still has leading strength in the AI competition, becoming a 'game changer', prompting global investors to reevaluate the valuations of Chinese technology stocks. Looking ahead, the A-share market offers broader choices in technology stocks, and the proportion of foreign capital holdings is at a historical low, which provides potential upward space for the market. The offshore market is expected to perform stronger in the short term, mainly benefiting from its advantages in technology and shareholder returns.

Fidelity International Fund Manager George Efstathopoulos stated that the current rise of A-shares and Hong Kong stocks is different from before, mainly driven by fundamentals. Data from the fourth quarter of last year showed that the Chinese economy is steadily improving, but the pace of improvement varies across industries, and the fiscal policy stance has shifted to introduce measures supporting the consumer market, with strong appliance sales under policy subsidies. George Efstathopoulos pointed out that the emergence of DeepSeek breaks the market's view that China is lagging behind the USA in the technology sector; investors have realized that China has the capability to innovate, rebuilding confidence and sentiment in the Chinese market, believing that AI can drive corporate profits, productivity, and even help improve the jobs market.

UBS Group's Chinese stock strategy analyst Meng Lei believes that overseas investors have chosen to underweight Chinese stocks for various reasons over the past few years, but now the development of DeepSeek has boosted the risk appetite for technology investment. Coupled with the recent intensifying volatility in overseas markets, relevant funds need to find new outlets. It is expected that foreign capital will continuously reduce the extent of underweighting, slowly raising it to market weight or even overweight proportion.

Regarding investment opportunities, Ping An Securities believes that for the A-share market, considering the increased risk appetite is an important support for this year's market, in addition to the main trend of technology, attention can also be given to the relatively low valuation positions and structurally favorable opportunities in some consumer industries where expectations may marginally improve. Among them, policy clues can focus on the appliance industry, which has relatively large subsidy strength this round; for industrial transformation clues, attention can be paid to consumer electronics benefiting from AI+ consumption catalysts and electric smart automobiles driven by AI+ end-side benefits. In contrast, the Baijiu (Chinese Liquor) industry is expected to see profits revised down over the next two years, but after nearly four years of adjustment, its PE valuation is already below the historical 20% percentile, and there may also be short-term bargaining opportunities during better market sentiment.

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