Goldman Raises MSCI China Target as DeepSeek Improves Outlook

Strategists at Goldman Sachs Group Inc. expect a blistering rally in Chinese equities to continue, as the emergence of DeepSeek sparks optimism over the country’s technological advancements, Bloomberg reported.

Kinger Lau and his colleagues see the MSCI China Index reaching 85 over the next 12 months, up from their previous target of 75. That indicates another 16% rise from Friday’s close. The index has already entered a bull market earlier this month. Their target for the CSI 300 Index was raised to 4,700 from 4,600.

DeepSeek and other Chinese artificial intelligence models have “altered the narrative of China technology, re-rated investors’ optimism about the growth of and economic benefits from AI,” the strategists wrote in a note dated Monday. Widespread AI adoption may boost Chinese earnings-per-share by 2.5% a year over the next decade, they said.

Wall Street investors and analysts are warming up to Chinese equities as DeepSeek’s technological breakthrough spurs a rethink of the market’s attractiveness. Over the past week, strategists at Morgan Stanley, JPMorgan Chase & Co. and UBS Group AG released bullish calls, while Man Group’s head of multi-strategy equities said Chinese stocks are among this year’s highest conviction trades.

“The latest technology breakthroughs are more micro- and innovation-driven in nature,” and may give the recovery more staying power than those that were purely driven by policy, the strategists wrote.

The MSCI China Index rose as much as 2% Monday, before halving its advance. Investors are looking to a potential meeting this week between President Xi Jinping and Alibaba Group Holding Ltd’s co-founder Jack Ma as the next catalyst, hoping that the event would signal a show of support for the private sector.

China’s 30-year bond futures slumped for a third straight day to the lowest since late January, due to outflows into stocks and tight liquidity in the money market. In the cash market, the 10-year yield climbed to 1.67%.

While calls are growing that the once-battered stock market is at a turning point, there are skeptics. Much remains unclear on how the AI momentum can lead to an increase in corporate profits. Chinese shares also have a poor long-term track record, with previous historic rallies — such as the one following the Covid reopening frenzy in late 2022 — cooling within months.

Goldman Sachs has long been bullish, often going against the tide during the market’s multi-year slump. Lau lifted target for the MSCI China in May last year to 70 from 60, but the index steadily slipped in the following months before rebounding late September. In January, Goldman Sachs predicted that Chinese shares could rise about 20% by the end of 2025, a call that proved timely.

The strategists like data and cloud, software and application themes as the AI capex cycle moderates but monetization gathers pace. And while AI could help boost China’s growth, “forceful policy stimulus is still required to address deep-rooted macro challenges and drive sustainable equity gains,” they said.