Goldman Sachs Predicts 13% Annual Earnings Growth for China's "Prominent Ten" Stocks

Goldman Sachs has reiterated its bullish stance on the Chinese stock market, highlighting the potential for global funds to return to China and focusing on what it terms the "Prominent Ten" stocks. This list, modeled after the U.S. market's "Magnificent Seven," includes Tencent, Alibaba, Xiaomi, BYD, Meituan, NetEase, Midea, Hengrui Medicine, Ctrip, and Anta. These companies are seen as leaders in their respective sectors and are expected to benefit from China's economic growth and policy support.

Goldman Sachs' optimism is driven by several factors, including the improving investment outlook for Chinese private enterprises. The firm's chief China equity strategist, Liu Jinjin, notes that various macroeconomic, policy, and microeconomic factors are contributing to this positive outlook. The firm expects the market concentration in the private enterprise sector to increase, with the "Prominent Ten" likely to gain further growth momentum.

Liu Jinjin outlines eight reasons for this expected market concentration. These include a more transparent anti-monopoly and merger framework in China, which is favorable for organic and acquisitive growth of private enterprises. Additionally, leading companies in various industries are expected to increase their market share and profitability. Many of these companies are at the forefront of artificial intelligence technology, which is poised to have a significant impact in the future. Global expansion is also expected to enhance the revenue growth and profitability of these private enterprises.

The "Prominent Ten" companies are seen as embodying several key economic themes in China, including the development of artificial intelligence and technology, the "going out" strategy, new consumption trends, and increased shareholder returns. These companies have a combined market capitalization of 1.6 trillion dollars, accounting for 42% of the MSCI China Index's weight. Goldman Sachs analysts predict that the earnings of these ten companies will grow by 13% annually over the next two years, with a price-to-earnings ratio of 16 times.

Goldman Sachs' bullish outlook on these ten companies does not imply a rejection of state-owned enterprises. The firm reiterates its preference for high-quality Chinese state-owned enterprises and those with strong shareholder return policies. This balanced approach underscores Goldman Sachs' confidence in the overall growth potential of the Chinese market, as well as its strategic focus on leading companies in key sectors.