Goldman Sachs Communication Meeting: Overweight China, Stocks in 2026 are "Clearly Overweight" Assets

On January 20th, Goldman Sachs held a media communication meeting in Beijing, where Liu Jinjun, Chief China Equity Strategist at Goldman Sachs, shared the latest insights on the Chinese capital market.

He pointed out that from the perspective of Goldman Sachs Research's 2026 global overall asset allocation, equity assets are clearly a high allocation asset, with Chinese stocks being one of the favored key directions.

He provided a detailed analysis of factors driving the upward movement of the Chinese stock market, such as the relocation of household deposits and the increased interest of foreign capital in allocating to China.

Liu Jinjun told Wall Street Insights that the slow bull market in the Chinese stock market is expected to continue, which is beneficial for insurance companies' allocation to equity assets. Insurance companies are gradually increasing their investment in equity assets, with the allocation ratio rising, which directly helps their overall investment returns.

“On one hand, this is because the U.S. has not experienced a recession, and on the other hand, global liquidity remains relatively abundant. Looking back at the past 50 years, every time such a combination appears, it has been a very obvious positive for the global stock market.”

“Currently, about 28% of the revenue of S&P 500 constituent companies comes from overseas, while the proportion of overseas revenue for all listed companies in China is only about 16%. This means that Chinese companies still have a lot of room to increase their share in overseas markets.”

“From the perspective of overseas capital allocation, hedge funds currently have a net allocation of less than 8% to the Chinese market, below the historical high of 11% to 13%. This indicates that there is still room for improvement in hedge funds' allocation in the Chinese market.”

“Goldman Sachs has clearly felt that the interest of overseas (secondary market) investors in the Chinese market is rising, but it has not yet truly translated into action. From the perspective of diversifying risks, China remains a very important choice for them.”

Optimistic Expectations for 2026

Liu Jinjun stated that Goldman Sachs Research believes that 2026 should still be a relatively "happy" phase for Chinese stocks.

Liu Jinjun believes that this year will be a relatively good year for China's economic growth. In addition, Goldman Sachs' view on U.S. economic growth is also relatively optimistic, with overall global growth being quite good. More importantly, Goldman Sachs believes that the Federal Reserve will still maintain a relatively loose monetary policy orientation this year, with the possibility of two rate cuts.

The reason Liu Jinjun emphasizes these two aspects is that the U.S. has not experienced a recession, and global liquidity remains relatively abundant. Looking back at the past 50 years, every time such a combination appears, it has been a very obvious positive for the global stock market. This is also why Goldman Sachs is relatively more confident about global risk assets this year, especially stocks.

From the perspective of major asset allocation, currently in Goldman Sachs Research's recommendations, the only clearly high allocation major asset remains equities.

Within equities, Goldman Sachs' most favored direction is emerging markets, maintaining a high allocation recommendation for Chinese stocks.

The Driving Force of the Chinese Stock Market: Earnings Growth

Returning to the Chinese market itself, Liu Jinjing stated that last year, both Hong Kong stocks and A-shares performed quite well overall, with returns of about 20% to 30%. However, if we break down the sources of returns, we can see that a significant portion comes from valuation recovery.

Taking the MSCI China Index as an example, the current dynamic price-to-earnings ratio is around 13 times, which has returned to historical average levels. On the A-share side, if we take the CSI 300 as a reference, it is currently around 15 times, also basically back to the historical median. Therefore, this year, Goldman Sachs has a very important judgment that overall returns still have room for growth, but the driving force will shift from valuation recovery to profit-driven. There may be differences between different indices, but overall, Goldman Sachs believes that this year's return range is approximately 15% to 20%, with the main driving force coming from profit growth, rather than valuation expansion.

Three Major Sources of Profit

Liu Jinjing is relatively optimistic about profit growth and believes there are three important themes for profit growth.

The first is AI. In the past few years, AI has made a significant contribution to overall stock market profits in the U.S. Goldman Sachs believes that the development path of AI in China is likely to gradually shift from computing power to applications, and finally to the monetization process. As AI is implemented, many Chinese technology companies will benefit. Goldman Sachs predicts that in the next 3 to 5 years, AI can contribute about 2% to 3% of profit growth annually across the entire market.

The second is going overseas. Goldman Sachs believes this will be a very important driver of profit growth in the next 3 to 5 years. Currently, about 28% of the revenue of S&P 500 constituent companies comes from overseas, while the proportion of overseas revenue for all listed companies in China is only about 16%. This indicates that Chinese companies still have significant room to increase their market share in overseas markets.

The third is anti-involution. Goldman Sachs' view is that anti-involution is not a positive for all industries, but for some upstream industries and certain manufacturing sectors, current gross margins are at historical lows, with the possibility of recovery or even reversal in the next one to two years.

Combining these three themes explains why Goldman Sachs believes that the overall profit growth center may maintain around 12% to 13% in the coming years.

Regarding valuations, from the very low levels in 2024, when the price-to-earnings ratio of the Chinese market was once below 10 times, it has now recovered to around 13 times. Liu Jinjing believes that the current valuation level is relatively reasonable. There is still room for further growth, but this space will be smaller compared to the previous valuation recovery phase.

Sources of Market Entry Funds

Liu Jinjing pointed out that an important source driving the market upward is liquidity. Last year, southbound funds were very abundant, with Goldman Sachs estimating that about $180 billion flowed into Hong Kong stocks throughout the year. This year, Goldman Sachs expects this figure may further rise to $200 billion, potentially setting a new high.

This reflects not only individual investors but also the demand from institutional investors for stock allocation is increasing.

From the perspective of overseas fund allocation, hedge funds currently have less than 8% exposure to the Chinese market, significantly lower than the historical peak of 11% to 13%. This indicates that there is still room for investors such as hedge funds to increase their allocation in the Chinese market. **

In the active public offering sector, overseas public funds are still underweight in their allocation to China, approximately 300 basis points underweight. However, in the past year and more of communication, Liu Jinjing has clearly felt that overseas (secondary market) investors' interest in the Chinese market is on the rise, but it currently remains more at the "interest" stage and has not yet truly translated into action.

From a risk diversification perspective, China remains a very important choice for foreign capital.

Regarding domestic liquidity, there has been much discussion recently about "deposit migration." The current excess deposit scale is still over 50 trillion yuan, and even if only a small portion enters the stock market, it will be a very important support for market liquidity. Goldman Sachs has made a relatively conservative estimate, believing that in the next 12 months, individual investors will have approximately 2 trillion yuan and over 1 trillion yuan from institutions that can enter the stock market.

Allocate to A-shares or Hong Kong stocks?

Many investors will ask whether they are more optimistic about A-shares or Hong Kong stocks. Goldman Sachs' answer is that both have their own advantages. Hong Kong stocks offer more choices in fields like the internet, while A-shares have a rich selection in AI, especially in areas leaning towards "physical AI," so Goldman Sachs does not make an either-or choice.

In terms of thematic investment, Goldman Sachs is closely tracking several directions. One is the theme of private enterprises, where Goldman Sachs believes that with policy support, the overall performance of private enterprises is expected to be relatively better in the coming years.

Another is the mid-cap stock theme, where Goldman Sachs has constructed a portfolio covering 23 sub-industries with a total of 50 mid-cap stocks, focusing on areas with significant policy support in the next five years.

There is also the overseas expansion theme, which has a clear logic, namely the structural opportunities brought by the increase in overseas market share.

The last theme is shareholder return, emphasizing dividends and buybacks, which have been validated in the Japanese and Korean markets as an important component of building a balanced portfolio.

To summarize the industry allocation, Goldman Sachs still maintains a high allocation to AI-related industries, including software, internet, and hardware; while continuing to overweight materials and insurance.

Why overweight the insurance sector?

Liu Jinjing told Zhitang that a slow bull market is expected to continue, which is beneficial for insurance companies' allocation to equity assets. Insurance companies are gradually increasing their investment in equity assets, with the allocation ratio improving, which directly helps their overall investment returns.

Secondly, in recent years, the market has placed great importance on high dividend themes. Within the large financial sector, the dividend levels of insurance are also not low, and the business itself can provide relatively stable returns. Therefore, from this perspective, insurance is a relatively good channel to participate in and share in the long-term theme of high dividends.

The third issue is valuation. Even though the insurance sector has performed well recently, the overall valuation is still below the long-term average level, so the valuation advantage remains quite evident.

Why is stock allocation "important"?

Regarding asset allocation, it is actually related to deposits and real estate. Ordinary investors have reason to allocate more to stocks from a medium to long-term perspective. Goldman Sachs currently holds a neutral view on commodities in global asset allocation but remains optimistic about gold and other precious metals. The only clearly overweight asset is still stocks In this regard, Liu Jinjun interprets that the valuation cannot be considered particularly cheap, but the company's own profit growth ability remains quite good within the structure of economic growth.

For example, for the S&P 500, Goldman Sachs estimates that there is still about a 10% return potential over the next 12 months. More importantly, most of Goldman Sachs' return forecast comes from profit growth rather than valuation expansion, which also reflects that companies still have the ability to generate revenue growth in the current macro context.

Goldman Sachs discussed the asset allocation structure of domestic individual investors in a report last year. Among them, real estate accounts for more than 55%, while stocks only account for about 10%. The model shows that if the real estate market remains flat in the coming years and bond yields continue to decline, the allocation ratio for stocks is significantly low and should theoretically be increased to nearly 40%.

Of course, such an adjustment cannot be completed in the short term. However, if the stock market really enters a slow bull phase, as investors' mindset gradually changes, individual investors' risk appetite for stocks may continue to increase.

Another very important factor is inflation. Many individual investors are willing to put their money in the bank to earn a return of 1% to 2%, which is not low in real terms. However, if inflation expectations begin to improve slowly, the demand for allocation to risk assets will naturally increase