Goldman Sachs: National Team's 100 Billion Yuan Buyback Stabilizes Chinese Market

Goldman Sachs has underscored the pivotal role of the "national team" in stabilizing the market, asserting that any future market upswing will hinge on economic improvements and upward revisions in corporate earnings. The recent tariff disputes have caused significant turbulence in global capital markets, but the A-share market has shown resilience following interventions by the "national team."

Goldman Sachs' China equity strategist, Fu Si, emphasized that the Chinese market remains undervalued with limited downside risk. The series of supportive policies implemented since September last year have already improved market performance. The "national team," representing state-backed funds, has been actively injecting capital into the A-share market, with total buyback and repurchase funds exceeding 100 billion yuan. Fu Si expressed confidence in the "national team's" financial reserves, stating that even with minimal initial investments, the market can be effectively supported.

In terms of onshore and offshore markets, Goldman Sachs expects the A-share market to outperform the Hong Kong market, with a particular focus on the consumer sector. The firm attributes the market's future upward momentum to improvements in macroeconomic conditions, corporate earnings, and further enhancements in the consumption and real estate sectors.

The fate of Chinese companies listed in the U.S. (ADRs) has also been a point of interest amid the tariff disputes. Fu Si noted that several large-cap Chinese companies have already completed dual listings, and some investors have shifted their trading to the Hong Kong market. This has mitigated the negative impact of potential forced delistings in the U.S., reducing the marginal impact significantly.

The "national team's" stabilizing efforts have been evident, with state-backed funds and corporate buybacks helping to steady the market following the initial shock of the tariff disputes. Goldman Sachs' chief economist, Shan Hui, cited data indicating that U.S. trade accounts for less than 3% of China's GDP, providing policy space to mitigate the impact of tariffs. Shan Hui anticipates that the central bank may increase the pace of interest rate cuts, potentially implementing a total of 60 basis points in reductions this year, spread across three quarters.

On the market front, despite some capital outflows due to recent disruptions, offshore hedge funds and active managers have increased their positions in the Chinese market, driven by the valuation of China's AI sector. The overall position of hedge funds remains higher than previous lows, suggesting limited downside risk.

Looking ahead, Goldman Sachs believes that the "national team's" primary role is to provide a safety net, and once the market stabilizes, their buying activity may slow down. The firm expects that the market's continued upward momentum will be driven by improvements in consumption, real estate, and overall economic conditions, as well as upward revisions in corporate earnings. The initial AI-driven rally has already demonstrated the potential for earnings growth in the internet sector, which could serve as a key driver for market gains.

In the long term, Goldman Sachs advises enhancing the intrinsic stability of the capital market by attracting long-term funds and improving the quality of listed companies. However, Fu Si cautioned that the short-term impact of tariff disputes on corporate fundamentals could limit significant market gains in the near term.

Goldman Sachs has consistently maintained a bullish outlook on the Chinese stock market, particularly in the consumer and technology sectors. The firm continues to favor strategic allocations in the A-share market over the Hong Kong market, focusing on sectors that benefit from government spending and policy support.