Goldman Sachs Strongly Recommends Overweighting Chinese Stocks in 2026

In the ever-shifting landscape of global markets, few calls carry as much weight as those from powerhouse firms like Goldman Sachs. Their latest report, China 2026 Outlook: Exploring New Growth Drivers, released on January 5, drops a bold recommendation: overweight Chinese equities, with a particular tilt toward A-shares and Hong Kong-listed stocks. This isn’t just casual advice—it’s a strategic push for investors eyeing Asia-Pacific portfolios, projecting annual returns of 15% to 20% through 2026 and 2027. Drawing from fresh economic forecasts and market trends, this outlook highlights China’s pivot toward innovation and exports as key catalysts. But what’s really behind this optimism? Let’s dive in, blending Goldman’s insights with broader market observations to help you decide if it’s time to ramp up your exposure.

Unpacking the Return Projections

Goldman Sachs breaks down the anticipated returns with a clear-eyed view of what drives stock performance: earnings growth and valuation adjustments. For 2026, they forecast a 14% bump in corporate profits, paired with roughly 10% in valuation re-rating—think of it as markets finally pricing in China’s undervalued assets. The story holds steady into 2027, with 12% earnings expansion and another 10% re-rating lift. This combo could deliver those solid 15-20% yearly gains, outpacing many global peers.

To put this in perspective, here’s a quick table summarizing the return components, based on Goldman’s analysis:

Year	Earnings Growth	Valuation Re-rating	Projected Total Return
2026	14%	~10%	15-20%
2027	12%	~10%	15-20%

These figures align with Goldman’s upgraded GDP forecasts for China, now at 4.8% for 2026—higher than the consensus 4.5% tracked by Bloomberg. Strong exports, up 8% this year alone, are expected to counterbalance softer domestic demand, creating a resilient backdrop for stock gains.

Fueling Profits: AI, Exports, and Policy Shifts

What’s powering this earnings rebound? Goldman points to three main engines: AI applications, outbound expansion by Chinese firms, and policies aimed at curbing “involution”—that cutthroat domestic competition that’s been dragging margins down. AI isn’t just hype; it’s embedding into manufacturing and services, boosting efficiency and opening new revenue streams. Meanwhile, Chinese companies are ramping up “going out” strategies, capturing market share in everything from EVs to tech components, even amid trade tensions.

This echoes wider trends seen in recent data. For instance, China’s manufacturing PMI has held steady above expansion levels, driven by high-tech exports that now dominate global supply chains. Policies like the “15th Five-Year Plan” emphasize tech self-reliance and modern industries, which could supercharge sectors like semiconductors and renewables. If you’re an investor, this means looking beyond traditional cyclicals—focus on firms leveraging these trends for sustainable growth.

The Undervalued Gem: Why Valuations Screams Opportunity

One of Goldman’s strongest arguments is China’s dirt-cheap valuations compared to global counterparts. Chinese stocks are trading at significant discounts—think forward P/E ratios in the low teens versus the S&P 500’s mid-20s. This gap isn’t just a blip; it’s a magnet for capital inflows, especially as global liquidity stabilizes post-Fed cuts.

Market watchers have noted light positioning by foreign investors, leaving plenty of room for inflows. With China’s current account surplus potentially hitting 1% of global GDP in the coming years—the largest in history—this could further bolster stock prices. It’s a classic setup: undervalued assets with improving fundamentals, ripe for re-rating as sentiment shifts.

Macro Foundations: Exports, Investments, and Consumer Boosts

Goldman doesn’t stop at micro-level drivers; they tie it all to a supportive macro environment. Exports are structurally ascending, thanks to China’s edge in producing high-quality goods at competitive prices—evident in their 70-90% dominance in rare earths and magnets. Investment policies are warming up, with fiscal stimulus targeting infrastructure and tech. On the consumer side, expect more emphasis on services, perhaps through extended holidays to spur spending.

This fits with Goldman’s global view: a “sturdy” 2.8% world GDP growth in 2026, where China outperforms at 4.8%. Even with U.S. tariffs looming, Beijing’s reluctance to devalue the yuan and its focus on quantity-based credit tools (rather than aggressive rate cuts) should keep things stable. The People’s Bank of China might sneak in one early-2026 cut, but the emphasis is on targeted support for favored sectors like advanced manufacturing.

Where to Allocate: A-Shares Lead, Sectors to Watch

Goldman favors A-shares over H-shares for their sensitivity to policy shifts and potential “national team” backing—those state funds that step in during volatility. Still, they advocate overweighting both in Asia-Pacific portfolios. Sector-wise, prioritize AI, high-end manufacturing, new energy, integrated circuits, export supply chains, and service consumption.

Here’s a breakdown of key sectors in a table for clarity:

Sector	Why It Matters	Potential Upside Drivers
AI & Tech	Rapid adoption in apps and hardware	Policy support for self-reliance
High-End Manufacturing	Export competitiveness	Global demand for EVs and components
New Energy	Renewables boom	Supply chain dominance
Integrated Circuits	Semiconductor push	Tech independence amid U.S. restrictions
Export Chains	Outbound expansion	Market share gains in emerging economies
Service Consumption	Holiday boosts and consumer focus	Fiscal measures to lift domestic spending

This selective approach avoids broad-market risks, focusing on areas aligned with the “15th Five-Year Plan.”

Navigating the Risks: What Could Go Wrong?

No outlook is risk-free, and Goldman flags several: global liquidity swings from Fed policy, escalating geopolitical frictions (hello, U.S.-China trade), earnings recovery falling short, or policy implementation delays. Add in structural challenges like China’s housing overhang and cautious consumers, and you see why diversification matters.

From a broader lens, recent analyses warn of export slowdowns if tariffs bite harder, potentially weighing on growth. Yet, Goldman’s base case sees resilience, with manufacturing’s strength offsetting domestic weaknesses. Investors should monitor indicators like export data and PMI readings closely—any dips could signal adjustments needed.

Final Thoughts: Is This Your Cue to Overweight China?

Goldman Sachs’ call to overweight Chinese stocks in 2026 isn’t a gamble—it’s grounded in data showing a rebound fueled by innovation, exports, and smart policies. With projected 15-20% returns and undervalued assets, it’s a compelling case for reallocating toward A-shares and select sectors. That said, balance it with risks; perhaps start with ETFs tracking AI or export plays for exposure without overcommitting.

If you’re building an Asia-focused portfolio, this could be the pivot point. Stay informed on policy updates and global trade news—they’ll dictate whether this outlook holds. In a world of “sturdy” but uneven growth, China’s story stands out as one of potential outperformance. Time to reassess your allocations?

Reference

1. 2026 Tech IPO Boom: 10 Game-Changing Listings
2. Goldman Sachs: Home