Key Takeaways:
- Goldman downgraded H-shares to equal-weight, citing delayed internet earnings.
- The bank raised its CSI 300 target to 5,500, keeping an overweight rating.
- MSCI China's 12-month target was cut to 85 from 95 on lower PE assumptions.
Back
Goldman cuts H-shares to equal-weight, lifts A-share target to 5,500
Goldman Sachs cut its rating on H-shares to equal-weight and raised its CSI 300 target to 5,500, favoring mainland AI hardware stocks over Hong Kong-listed internet giants.
"We like the China AI story but not the index that carries it," Kinger Lau, chief China equity strategist at Goldman Sachs, said in a June 3 report.
The bank lowered its 12-month MSCI China target to 85 from 95, compressing the target price-earnings multiple to 12 times from 13 times. It cut its 2026 earnings-per-share growth forecast for the index to 8 percent from 12 percent, citing a 340 billion yuan subsidy war among food-delivery and instant-retail platforms that has pushed internet profit recovery back by three to six months. For the CSI 300, Goldman raised its 2026 EPS growth estimate to 20 percent from 16 percent and lifted its 12-month target to 5,500 from 5,300 — the second upgrade this year.
The divergence reflects how China's AI policy has favored hardware over software. AI hardware stocks have driven 85 percent of the $3.8 trillion in Chinese AI equity market gains since the DeepSeek moment in January, Lau wrote. China accounts for 10 percent of global AI market capitalization and 16 percent of AI revenue, yet international investors allocate only about 1.2 percent of their portfolios to Chinese AI stocks, he said.
The opportunity cost of waiting for H-share earnings to recover is rising, Lau said. North Asian markets including Japan, South Korea and Taiwan offer stronger cyclical earnings growth and higher visibility. Goldman separately raised its KOSPI target to 12,000 from 9,000 and upgraded Taiwan to overweight, with the TAIEX target rising to 51,000 from 45,000.
The MSCI Asia Pacific ex-Japan index is up 27 percent year-to-date, but excluding South Korea and Taiwan it is down 4 percent, the note said. "This performance disparity, which is over 160 percent between Korea and Indonesia, can largely be explained by the twin axes of energy supply shock sensitivity and technology sector exposure," the analysts wrote.
Goldman's A-H share rotation model still signals H-shares have about 6 percent relative upside versus A-shares, but that recovery depends on an earnings inflection point rather than cheap valuations alone. The bank said it would reassess the offshore beta opportunity once internet profit paths become clearer, likely around the third quarter of 2026.
The downgrade shifts the center of gravity for China equity exposure from Hong Kong-listed internet giants to mainland-listed hard-tech and AI infrastructure names. Investors will watch the August earnings season for signs of a profit inflection in H-share internet companies.
This article is for informational purposes only and does not constitute investment advice.
[1] Goldman Sachs Bullish on A-shares, but Downgrades H-shares to Equal-weight: The Cost of Waiting for H-share Recovery is Getting Higher as Japan and South Korea Markets are Stronger[2] Goldman Sachs cuts Hong Kong stocks in favor of mainland China AI hardware plays[3] Goldman upgrades Taiwan, South Korea stocks as Asia rally intensifies[4] Goldman Sachs remains bullish on A-shares but downgraded H-shares to market weight, noting that the cost of waiting for a recovery in H-shares has increased amid stronger performance in other North Asian markets. - 富途牛牛
