Goldman Sachs has strategically re-evaluated its stance on Chinese equities, now favoring mainland A shares over Hong Kong-listed H shares. This recalibration, announced Wednesday, saw the investment bank downgrade H shares to a market-weight rating from overweight. Concurrently, it maintained an overweight position on mainland A shares, viewing them as a more effective conduit for exposure to the burgeoning artificial intelligence hardware sector. The rationale hinges on the concentration of China’s AI semiconductor companies and their associated supply chains within the mainland stock exchanges.
Market Reaction and Projections
In a significant projection, Goldman Sachs has raised its 12-month target for the CSI 300 index, a key benchmark for mainland China’s A shares, to 5,500 from a previous 5,300. This adjustment implies an anticipated upside of nearly 12% from Tuesday’s closing levels. While the firm still foresees approximately 11% potential gains for the MSCI China index, which is heavily weighted towards H shares, the overall regional allocation has been shifted to market weight. Year-to-date performance starkly illustrates this divergence: the Hang Seng Index has eked out a modest gain of about 1.5%, whereas the CSI 300 has appreciated by over 6%. This performance gap widens considerably when examining the technology sector. The Hang Seng Tech index has experienced a year-to-date decline exceeding 5.5%, contrasting sharply with the Nasdaq-style ChiNext index, which has surged by more than 25% over the same period.
The “Hard Tech” Thesis and Investor Over-ownership
This marked divergence in performance is largely attributed to Beijing’s strategic focus on bolstering artificial intelligence hardware development over software applications and models. Kinger Lau of Goldman Sachs highlighted in a report that “hard tech” in AI has been the primary driver, accounting for 85% of the $3.8 trillion in gains within China’s AI equity market since January 2025. Despite China’s substantial contribution, representing at least 10% of the global AI-related market capitalization, Lau noted that Chinese AI stocks remain “substantially under-owned by international investors.” This sentiment is also reflected in corporate earnings, where “hard tech stocks have delivered strong top-line and profit growth but large-scaled Internet companies have continued to struggle to grow their bottom-line,” according to Lau. Furthermore, anticipated initial public offerings for prominent Chinese chip manufacturers and humanoid robot companies are slated for the mainland market, bypassing Hong Kong, while H-share AI model entities are reportedly planning secondary listings on A-share exchanges.
Business Style Takeaway: Goldman Sachs’ strategic shift underscores a critical global investment theme: the increasing importance of China’s domestic “hard tech” sector, particularly in AI hardware, over its more internationally exposed internet giants. Investors navigating this landscape must distinguish between the mainland and Hong Kong markets, recognizing that regulatory and strategic priorities are increasingly driving value creation within China’s core technology industries, creating a potential disconnect for those solely focused on H-share valuations.
Based on materials from : www.cnbc.com