Blog

Fiscal Stimulus Essential for Boosting Chinese Stocks Amid AI Advancements

Emilia Wright | February 18, 2025

Responsive image

Fiscal Stimulus Required for Sustainable Gains in Chinese Stocks

Chinese stocks are beginning to show signs of life from their post-pandemic stagnation, driven primarily by advancements in artificial intelligence (AI). According to a recent report from Goldman Sachs, this surge could potentially attract up to $200 billion in investor capital by the end of this year. The analytical team at Goldman has raised their target for the CSI 300 index from 4,600 to 4,700, suggesting a potential price return of 19% from current levels.

AI’s Potential Impact on Earnings

The Goldman Sachs strategists estimate that increased adoption of AI in China could lead to a boost in earnings per share (EPS) by around 2.5% per year over the next decade. Alongside this, better growth prospects could further elevate the fair value of Chinese stocks by at least 15-20%, helping stabilize the market amidst various economic uncertainties.

Last year, the CSI 300 index rebounded with a 14% gain, a marked improvement following three consecutive years of decline post-pandemic. In contrast, the American S&P 500 saw an impressive 23% increase during the same period, highlighting the potential gap in recovery between the U.S. and Chinese markets.

Need for Fiscal Stimulus

Despite the promising outlook surrounding AI, Goldman Sachs underscores the necessity for fiscal stimulus to address persistent macroeconomic challenges in China. Analysts emphasize that substantive policy measures are essential to:

  • Mitigate headwind tariffs
  • Facilitate a transition from external to domestic demand
  • Interrupt the disinflationary spiral
  • Address various macro imbalances

These strategies aim to support overall earnings and sustain market rallies.

Hang Seng Tech Index Shows Promise

Looking at specific indices, the Hang Seng Tech Index has already marked a 23% increase this year. An ETF tracking this index gained 19% in 2024, making it the first winning year in four. The report suggests that key beneficiaries of this rising AI landscape include sectors like data and cloud services, software, and application companies.

Comparison of Chinese and U.S. AI Stocks

The Goldman strategists pointed out the significant discount of Chinese tech stocks compared to their U.S. counterparts, such as Apple and Tencent. Since the launch of ChatGPT in November 2022, U.S. stocks have surged by 50%, increasing market capitalization by an astounding $13 trillion. In contrast, the influx of investment into U.S. equities topped around $660 billion over the past year, resulting in double-digit gains for indices like the S&P 500 and the Nasdaq Composite.

Potential Inflows and Market Cap Growth

Optimism surrounding AI applications like DeepSeek is starting to generate meaningful investor interest in Chinese stocks. If companies in China can increase their aggregate market capitalization by an estimated $3 trillion over the next 12 months, analysts predict that the AI-driven narrative could facilitate up to $200 billion in net global buying.

Cautions Amidst the Optimism

However, the analysts advise cautiousness for enthusiastic investors, identifying several risks tightly woven into China’s AI narrative. These risks include:

  • Data privacy concerns
  • Regulatory challenges
  • National security scrutiny
  • Disinflationary pressures
  • Potential tech export restrictions from Western nations

These issues might not be currently highlighted, as investors digest the surprising upward momentum from AI advancements, while existing equity valuations remain relatively attractive.

Conclusion

The blend of AI innovation and necessary fiscal support may provide the needed impetus for a stable recovery of Chinese stocks. As the market evolves, careful attention to both opportunities and inherent risks will be vital for investors wanting to navigate this complex financial landscape.