Chinese indices were flat to down during the week, real estate lagged sharply, and H-shares may modestly outperform A-shares over the next three months
AI summary card
Chinese indices were flat to down during the week, real estate lagged sharply, and H-shares may modestly outperform A-shares over the next three months
Goldman Sachs’ China weekly preview shows MXCN/CSI300 fell 2.3%/0.3% this week, April economic activity data broadly came in below expectations, but capital flows, earnings, valuation and the A-H rotation model still point to structural opportunities.
- MXCN/CSI300 fell 2.3%/0.3% this week, while STAR50 continued to rise 6%, bringing its year-to-date gain to 33%.
- Real estate was weak: H-share real estate fell 5.6%, and A-share real estate fell 7.2%, both among the worst-performing sectors.
- Southbound flows saw a net outflow of about US$1.7bn this week, but year to date still show about US$35bn in net buying.
- The 12-month forward P/E ratios for MSCI China and CSI300 are 11.1x and 15.0x, respectively.
- I/B/E/S consensus estimates imply MXCN EPS growth of 17%/18% in 2026/2027, versus 25%/16% for CSI300.
- Goldman’s A-H rotation model indicates H-shares may modestly outperform A-shares over the next three months, with a directional hit rate of about 70%.
Report interpretation
Overview
This report is Goldman Sachs’ weekly preview and strategy update on the China equity market, covering index performance, macro and policy events, fund flows, fund positioning, earnings and valuation. The report notes that MXCN/CSI300 fell 2.3%/0.3% this week, STAR50 extended its strong advance; President Xi met with Russian President Putin in Beijing; April activity data broadly missed expectations; and Hang Seng Indexes Company announced its index review results.
Core views
The core views are: first, China’s major indices are weak in the short term but with clear divergence, as technology and growth styles are relatively favored while real estate and value styles lag; second, although April activity data missed expectations, the report headline suggests Goldman is not overly concerned about the weakness in the data; third, the A-H rotation model expects H-shares to modestly outperform A-shares over the next three months; fourth, earnings expectations still point to positive growth in 2026/2027, but revisions vary significantly by sector, with real estate mentioned as one of the sectors with the largest upward revisions; fifth, southbound flows were out on a short-term basis but still remain a sizable net inflow year to date.
Analysis framework
The report uses a weekly market strategy framework that combines index performance, sector and style rotation, southbound flows, fund positioning, macro data, policy events, earnings revisions and valuation levels to assess the China equity market. It also uses the A-H rotation model, EPFR fund positioning data, I/B/E/S consensus estimates, and MSCI China and CSI300 valuation and earnings metrics to judge market direction and relative allocation opportunities.
Methodology notes
Compares the relative performance of A-shares and H-shares over the next three months
The model combines factors such as economic growth, market policy, liquidity and risk, company fundamentals, valuation, liquidity and sentiment; the current signal points to H-shares modestly outperforming A-shares over the next three months, and the chart notes a directional hit rate of about 70%.
Measures whether Asia and emerging-markets funds are overweight or underweight relative to benchmarks
The report uses preliminary EPFR data to assess changes in fund allocations to China, Hong Kong, Taiwan, India, South Korea and other markets and sectors, helping judge cross-market capital preferences.
Uses consensus EPS growth and forward P/E to gauge earnings momentum and valuation levels
The report discloses MXCN/CSI300 EPS growth expectations for 2026/2027 and 12-month forward P/E ratios, and combines them with sector earnings revision analysis to assess market fundamentals.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- MSCI Chinacore offshore China equity index under observation
- Strengths
- 12-month forward P/E is 11.1x, and 2026/2027 EPS consensus growth remains 17%/18%.
- Weaknesses
- Down 2.3% this week, with weak short-term market performance.
- Comparison
- Compared with CSI300, the weekly decline is larger, but the valuation multiple is lower.
- Risks
- Macro data below expectations, divergent sector earnings revisions, and volatility in foreign and southbound flows.
- CSI300core onshore China broad-market index under observation
- Strengths
- 2026/2027 EPS consensus growth is 25%/16%, implying relatively strong earnings growth expectations.
- Weaknesses
- 12-month forward P/E is 15.0x, above MSCI China.
- Comparison
- Down 0.3% this week, making it more resilient than MSCI China; however, the A-H rotation model is short-term more favorable to H-shares.
- Risks
- Higher valuation, volatility in A-share liquidity and policy expectations, and macro data misses.
- H-sharesthe relative allocation direction favored by the A-H rotation model
- Strengths
- The model expects H-shares to modestly outperform A-shares over the next three months, with factors such as economic growth, market policy and company fundamentals leaning toward H-shares.
- Weaknesses
- Some H-share sectors such as real estate and value styles underperformed this week.
- Comparison
- Relative to A-shares, the model signal is tilted toward H-shares over the next three months.
- Risks
- Short-term net outflows from southbound flows, Hong Kong market liquidity, and changes in overseas risk appetite.
- China real estate sectorkey sector tag and underperformer this week
- Strengths
- The report notes the largest upward revisions in real estate earnings, and April home prices in first-tier cities continued to rise month over month while declines in major home prices narrowed.
- Weaknesses
- H-share real estate fell 5.6% this week, and A-share real estate fell 7.2%, both significantly lagging.
- Comparison
- Clearly lagged information technology and growth styles.
- Risks
- Sales and price improvement may not persist, policy support may fall short of expectations, and balance-sheet pressure.
- China information technology and AI-related assetsthe sector and theme with relative outperformance this week
- Strengths
- H-share IT rose 6.4%, and A-share IT rose 6.9%; the report’s chart says hardware is leading software within the China AI universe.
- Weaknesses
- After a strong prior run, these assets may face valuation and crowded-trade risks.
- Comparison
- Strongly outperformed real estate and value styles.
- Risks
- Earnings delivery, valuation pullback, and changes in global technology risk appetite.
Key data
- MXCN weekly performance-2.3%The report says MXCN fell 2.3% this week.
- CSI300 weekly performance-0.3%The report says CSI300 fell 0.3% this week.
- STAR50 weekly performance+6%STAR50 rose another 6% this week, bringing its year-to-date gain to 33%.
- Southbound flow this weekoutflow of about US$1.7bnThe report says southbound flows recorded a net outflow this week.
- Southbound flow year to dateabout US$35bnThe report discloses Southbound: US$35bn ytd.
- MSCI China 12-month forward P/E11.1xThe report discloses MXCN 12m forward P/E as 11.1x.
- CSI300 12-month forward P/E15.0xThe report discloses CSI300 12m forward P/E as 15.0x.
- MXCN 2026/2027 EPS growth consensus17%/18%Based on I/B/E/S consensus estimates.
- CSI300 2026/2027 EPS growth consensus25%/16%Based on I/B/E/S consensus estimates.
- A-H rotation model directional hit rateabout 70%The chart notes the model’s directional hit rate is 70%.
Impact & implications
For portfolios, the report suggests that the China market is still being influenced in the short term by weaker macro data, a drag from real estate, and index volatility, but it is not broadly bearish. Technology, growth and some AI hardware-related assets are strong, and H-shares may have a modest relative advantage over A-shares over the next three months. Although real estate lagged this week, the report also mentions upward earnings revisions for real estate, implying a divergence between price performance and earnings expectations that will need to be resolved by policy, sales and price improvement.
Risks
- April China activity data broadly missed expectations, which could weigh on growth and earnings expectations.
- Real estate price performance lagged sharply, and the fundamental repair remains uncertain.
- Southbound flows recorded a net outflow of about US$1.7bn this week, which may temporarily disturb Hong Kong market performance.
- Although the A-H rotation model points to H-shares outperforming, actual relative returns have historically been volatile and the signal is not a guarantee.
- The report includes broad regulatory disclosures, indicating that research views may change and do not constitute personalized investment advice.
What to watch
- Whether subsequent monthly China macro activity data confirm that April’s weakness was only a short-term disturbance.
- Whether real estate prices, sales and policy support can continue to improve.
- Whether southbound flows can return from this week’s outflow to net inflow.
- The impact of Hang Seng Indexes Company’s index review results, effective after the close on June 5, on constituents and passive flows.
- The direction of earnings revisions for MSCI China and CSI300, especially changes in real estate, technology and value styles.
- Whether H-shares outperform A-shares over the next three months, validating the A-H rotation model signal.