Goldman: Risks and Opportunities for China's Stock Market in 2025

The core views in this article are derived from Goldman's Liu Jinjin team's latest report "China Market Thoughts - Setting Sail 202 (Part 3): Scenario Analysis: Risks and Opportunities for China's Stock Market in 2025". The first and second parts of this series can be found in the history of this account's releases. Key Points: We predict that the MSCI China Index could rise by 14% by the end of 2025 in our base case; our core view is that the implementation of China's highly anticipated stimulus policies will help this year's actual GDP growth of 4.5% and corporate earnings growth of 7%, driving the index's P/E ratio from the current 10 times to 11 times, reaching our perceived equilibrium level. However, stock trading rarely revolves around fair value, and 2025 will inevitably be full of uncertainties. Therefore, understanding the current market consensus and the risks faced by our core assumptions is crucial for building our overall return and excess return views. We believe the key factors affecting China's stock market will revolve around the following: 1. US tariffs and RMB exchange rate (Goldman's base scenario forecast: the US will impose an actual tariff of 20% on imported goods from China) 2. Sino-US relations (Goldman's forecast: the Sino-US relations barometer GSSRUSCN reflects a moderate level of tension between the two countries) 3. Fiscal policy implementation and inflation (downward) (Goldman's forecast: the general fiscal deficit rate in 2025 is 13%, and the average CPI and PPI inflation rates are -0.3%) 4. China's AI development/applications (Goldman's forecast: US restrictions in the technology sector may drag China's GDP by 1.7% cumulatively) 5. Stabilization of the real estate market (Goldman's forecast: the area and sales volume of national real estate sales will decrease by 4% and 9% year-on-year, and the price will drop by 5%) 6. Stock market support measures (Goldman's forecast: the state-owned buyout will be RMB500bn; the shareholder return rate will be 3.0%) We analyzed the upside and downside risks to China's stock market based on these six dimensions: we believe that the optimistic and cautious scenarios' valuations compared to the current one have a 30% upside and a 10% downside possibility, respectively, supporting our view that China's stock market returns are greater than risks. However, it should be acknowledged that, in addition to other unidentified unknown factors, the wide range of scenario assumption results highlights the investment strategy of pursuing excess returns relative to the overall market returns. Note: The images in the original text have been removed from the polished translation.