Recently, major Wall Street firms Goldman Sachs and Morgan Stanley have both expressed bullish sentiments about the Chinese market. Goldman Sachs predicts that the Chinese stock market is likely to see more fundamental-based increases, while Morgan Stanley has once again raised the target levels for several major Chinese stock indices.

On March 26, Goldman Sachs Analyst Kinger Lau stated in the latest report that investors are reacting calmly to the threat of US tariffs, while China's AI narrative is seen as a game changer, expected to increase China's EPS by 2.5% annually over the next decade and attract over 200 billion dollars in funding.

On March 25, Morgan Stanley Analyst Laura Wang and others raised the target levels for several major Chinese stock indices, including the Hang Seng Index, MSCI Chinese Index, and CSI 300 Index, anticipating an 8%-9% upside by the end of the year. According to previous reports from Wall Street, Morgan Stanley has once again raised the target levels for Chinese stock indices based on three solid reasons: the first earnings beat in three and a half years, upward revisions in profit forecasts, and the potential elimination of long-term discounts in valuations.

Goldman Sachs: China's AI narrative will be a true 'game changer.'

Goldman Sachs's survey results show that the vast majority of investors view China's AI development as a real 'game changer.'

Analysts expect that the widespread application of AI technology will contribute approximately 2.5% annual growth to the EPS expectations of Chinese companies over the next decade.

This technological revolution will not only enhance corporate profitability but is also expected to attract over 200 billion dollars in portfolio investments into the Chinese market, providing continuous funding momentum for the stock market.

Additionally, Goldman Sachs stated in its latest report that based on investor surveys, investors remain calm regarding tariff concerns. There may be three key reasons behind this.

First, due to the decrease in China's direct exports to the USA and the continuing improvement in product competitiveness, the sensitivity of the Chinese economy to US tariff impacts has decreased.

Second, under the threat of tariffs, the RMB Exchange Rates have generally remained stable, which further strengthens market confidence.

Finally, investors are betting that China and the USA may reach a comprehensive agreement in the coming months, ultimately leading to a reduction in tariffs rather than a continued escalation.

Furthermore, Goldman Sachs pointed out that global Fund managers are generally willing to return to the Chinese market, which will provide additional upward momentum for the Chinese stock market.

Morgan Stanley: The Chinese market welcomes three solid Bullish factors.

Despite the ongoing uncertainties, Morgan Stanley holds a cautiously optimistic view on the prospects of the Chinese market, believing that with improved earnings expectations and valuation recovery, the market is expected to achieve further upward movement.

1. According to Morgan Stanley's analysis, the MSCI Chinese Index constituent stocks showed unexpectedly good quarterly performance for the first time in three and a half years.

The earnings reports for the fourth quarter show a net earnings surprise of 8% when calculated by both the number of companies and market cap, which is the first time since the third quarter of 2021, ending a 13-quarter period of performance disappointment.

Among the major global markets, China ranks second in the world with a net earnings surprise rate of 8%, only behind Japan's 13.7%, significantly outperforming Europe, the USA, and other emerging markets. More importantly, this performance improvement is evenly distributed and not concentrated among a few large-cap companies, indicating a healthier recovery.

2. Morgan Stanley raised the earnings growth forecasts for MSCI Chinese Index for 2025 and 2026 to 7% and 9%, respectively, an increase from the previous 6% and 9%.

3. Morgan Stanley expects that the valuation of MSCI Chinese Index will align with that of MSCI Emerging Markets, eliminating the long-standing discount. Currently, the 12-month forward PE of MSCI Chinese Index has risen from 10.2 times to 11.6 times, and the discount to MSCI Emerging Markets has narrowed to 6%.

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Editor/Somer