Goldman's 2026 China Equity Forecast: Earnings, AI, and the Consumption Pivot

Goldman Sachs is calling for a significant, but more measured, advance in Chinese equities in 2026. The bank projects the MSCI China Index to climb by year-end, with the broader CSI 300 Index gaining . This forecast, while positive, marks a clear shift in the investment thesis. The bank emphasizes that "our expected equity gains in 2026 are almost entirely earnings-driven," a departure from the 2025 rally, which was fueled more by sentiment and policy optimism.

The required acceleration in corporate profits is substantial. , . This improvement is expected to be supported by a combination of AI-driven productivity gains, corporate global expansion, and supportive policy measures. For the rally to materialize, this earnings cycle must convincingly outpace the market's already-robust performance.

The current market context underscores the challenge. . This leaves little room for multiple expansion; any further gains will depend almost entirely on the market's ability to digest these elevated valuations through real profit growth. The bank's targets suggest confidence that the right mix of technology adoption and policy support can deliver that needed earnings lift.

The Earnings Engine: AI Policy, Geopolitical Headwinds, and the Consumption Challenge

The plausibility of Goldman's projected earnings acceleration hinges on a critical tension. On one side, the bank points to powerful policy supports: the "AI Plus" initiative and the "Going Global" strategy as key drivers for corporate profit expansion. The AI push, with its ambitious deployment targets, aims to boost productivity across industries. Meanwhile, the "Going Global" policy is designed to help Chinese firms expand overseas, diversifying revenue streams and potentially lifting margins. These are the engines Goldman believes can propel profit growth to 14%.

Yet these positive catalysts must navigate a broader economic slowdown. Both the IMF and World Bank project China's GDP growth to decelerate to around 4.5% in 2026. This is a structural shift, not a temporary blip. The economy is transitioning from investment-led to consumption-led growth, a goal explicitly stated in the 15th Five-Year Plan. But this pivot is still in its early, fragile stages. The government's "anti-involution" campaign to combat deflation is unfolding slowly, and the scale of the challenge-rooted in the property crisis and weak domestic demand-suggests it will take time to work.

This sets up a direct conflict with the consumption narrative. The drag from the property sector is stark: . More broadly, , and households remain cautious amid a soft labor market. This weak domestic demand is a fundamental headwind for corporate earnings, especially for consumer-facing businesses. The counter-narrative is clear: while policy supports the top line, the underlying economic engine is sputtering.

The geopolitical landscape adds another layer of complexity. While not a direct earnings item, . This could pressure the "Going Global" strategy, particularly in key markets. For the earnings forecast to hold, the AI productivity gains and global expansion must be robust enough to offset these domestic and external pressures. The bank's thesis is one of selective optimism, betting that technology and policy can drive corporate profits even as the broader economy slows. The coming quarters will test whether that bet is well-placed.

Financial Impact and Valuation: Can Growth Justify the Multiple?

For Goldman's 20% rally target to materialize, the projected earnings acceleration must translate into tangible improvements in corporate profitability and cash flow. The bank's thesis is that AI-driven productivity and policy support can lift profit growth to around 14% in 2026, . This is the core requirement. Without a credible, repeatable earnings story, the market risks multiple compression, as the valuation re-rating of 2025 was sentiment-led, not earnings-based.

The challenge is structural. The drag from the property sector and weak private investment is severe. , . This is a fundamental headwind to corporate profits, particularly for suppliers and service providers. For the earnings forecast to hold, the AI productivity gains and the "Going Global" strategy must be robust enough to offset this domestic demand drag. The bank's optimism hinges on technology and policy successfully creating new profit pools that can outpace the contraction in traditional sectors.

Geopolitical tensions add a significant layer of risk to this equation. . This trade shock increases global scrutiny and could pressure margins for export-heavy firms, even as China diversifies toward emerging markets. For the earnings story to be credible, the AI productivity gains must be broad-based enough to support corporate margins and cash flows across the entire economy, not just in a few tech or export sectors.

The bottom line is one of selective optimism. Goldman's targets suggest the bank believes the right mix of technology adoption and policy support can deliver the necessary earnings lift. But the setup is fragile. The required profit growth must not only be delivered but must also be perceived as sustainable and widespread. Any stumble in the domestic demand recovery or a further escalation in trade tensions could quickly undermine the earnings narrative, leaving the market with elevated valuations and no multiple expansion to fall back on. The coming quarters will test whether the projected earnings engine is powerful enough to drive the market higher on its own.

Catalysts, Risks, and What to Watch

The path to Goldman's 20% rally is not guaranteed. It will be confirmed or broken by a series of forward-looking events and metrics. The bank's thesis hinges on a successful policy pivot and visible corporate results, but several key risks could derail it.

The primary catalysts are the implementation of the promised policy engines. The "AI Plus" initiative and the "Going Global" strategy must move from announcements to tangible profit contributions. Investors will watch for concrete evidence of AI productivity gains in corporate earnings reports, particularly in the first quarter. More broadly, the success of the "anti-involution" campaign to combat deflation will be critical. Visible progress in breaking the price-cutting cycle and boosting domestic demand is a prerequisite for the consumption-led growth narrative to gain traction.

Yet significant risks loom. The pace of AI adoption could be slower than the ambitious targets set by the government, which aims for . Geopolitical and trade shocks remain a persistent threat, as evidenced by the . This constrains the "Going Global" strategy and increases global scrutiny of China's trade surplus. Most fundamentally, the weakness in the property sector and private investment is structural. .

For investors, the watchpoints are clear. The first and most important is quarterly earnings growth for the CSI 300. The market's ability to sustain its rally will depend entirely on these reports meeting or exceeding the projected acceleration to 14%. Second, monitor the pace of fixed asset investment, especially the private component, as a leading indicator of business confidence and future economic momentum. Finally, track the trajectory of China's trade surplus and the level of global scrutiny it attracts. A widening surplus without a corresponding boost to domestic demand could invite more protectionist pressures, complicating the export diversification strategy.

The setup is one of selective optimism. The catalysts are powerful, but the risks are equally material. The coming quarters will provide the first real tests of whether policy can drive corporate profits fast enough to justify the market's elevated stance.