Goldman Sachs: A-shares Outperform HK Stocks, Q1 Earnings Up 16%, Oil Price and PPI Forecasts Revised Higher

Overview

This is Goldman Sachs' weekly strategy review for the China market. The report notes that during the week prior to the Labor Day holiday, offshore Chinese stocks (MSCI China) dipped slightly, while onshore stocks (CSI 300) rose slightly, with the STAR Market significantly outperforming the broader market. On the macro front, the April Politburo meeting set the tone as 'stability,' emphasizing the implementation of existing policies amidst external uncertainties. Regarding earnings, as most companies have disclosed their Q1 reports, overall profits show double-digit growth. Additionally, Goldman Sachs' commodities team adjusted oil price forecasts in response to geopolitical situations, while the economists team revised up the China PPI forecast.

Core views

Market Performance and Style Divergence: This week, the MSCI China Index fell 1.5%, while the CSI 300 Index rose 0.8%, showing a divergence between onshore and offshore markets. The STAR 50 Index surged 8.1%, emerging as the standout performer. In terms of industries, within the Hong Kong market, the Energy sector (+5.0%) and sectors with earnings upgrades (+1.6%) outperformed, while Communication Services (-2.2%) and Weak Balance Sheet sectors (-0.9%) lagged. In the A-share market, Real Estate (+5.2%) and Growth style (+2.9%) stood out, while Consumer Staples (-2.5%) and High Dividend (-2.6%) sectors were relatively underperformers. Earnings and Valuation Updates: As of April 30, 81% of companies within the entire universe of China-listed equities have disclosed their 2026 Q1 financial reports, with overall net profit growing 16% year-over-year. Among them, earnings forecasts for sectors such as Energy and Materials were significantly upgraded. Consensus expectations indicate that earnings per share (EPS) growth for MSCI China and CSI 300 indices for 2026/2027 are expected to be 17%/17% and 26%/14% respectively. Current 12-month forward P/E ratios are 11.5x for MSCI China and 14.8x for CSI 300. Macro and Policy Developments: The April Politburo meeting focused on implementing existing policies against the backdrop of external uncertainties. Chinese and US top leaders held a video call on April 30 covering fiscal and trade issues. On macro data, industrial enterprise profits in March grew 16.0% year-over-year. The official manufacturing PMI dropped slightly in April, but the RatingDog manufacturing PMI rose; both indicate persistent inflationary pressures. The official non-manufacturing PMI remained flat at post-pandemic lows. Goldman Sachs' commodities team postponed the assumption of normalization of Gulf exports to late June, raising the Q4 2026 Brent crude oil price forecast from $80/barrel to $90/barrel. Simultaneously, Goldman Sachs economists raised China's PPI forecasts for 2026/2027 from 1.0%/0.6% to 1.2%/0.9%. Capital Flows and Positions: Southbound funds recorded a net inflow of $2.4 billion this week, bringing the year-to-date cumulative net inflow to $36 billion. Global fund allocations to China have decreased by 36 basis points month-to-date to 7.3%, but remain at the 89th percentile high for the past five years. Emerging Markets/Asia ex-Japan funds have significantly narrowed their underweight position in China. Goldman Sachs' A-H share rotation model suggests H-shares may slightly outperform A-shares over the next three months.

Analysis framework

Goldman Sachs employed a typical strategy analysis framework combining "top-down" and "bottom-up" approaches. First, by tracking high-frequency market data (index movements, sector rotations) and macro policy signals (Politburo meetings, Sino-US dialogue), they gauge short-term market sentiment and direction. Second, they delve into micro fundamentals, utilizing disclosed quarterly financial report data to verify the quality of earnings recovery and assessing valuation attractiveness combined with consensus expectations. Furthermore, the report pays special attention to changes in liquidity, judging the attitudes of domestic and foreign investors through southbound capital flows and global fund positioning data. Finally, incorporating proprietary models (such as the A-H rotation model and policy barometers) provides forward-looking tactical advice.

Methodology notes

• Industry/Industrial Analysis FrameworkVolume-price decomposition

  PPI Forecast and Industrial Profit Analysis

  The research report decomposes price factors (upward revision of PPI forecasts) and quantity/profit factors (industrial profit growth) to determine the earnings drivers for upstream and midstream industries, which helps understand the impact of inflation transmission on corporate statements.

• Quantitative/Factor/Portfolio TheoryBeta/alpha analysis

  A-H Share Rotation Model

  Institutions use proprietary models to compare relative returns between A-shares and H-shares, considering multiple factors such as economic growth, macro policy, and liquidity, to judge the relative strength trends of the two markets. This is a common relative value analysis method in cross-border allocation.

• Event Gaming and Behavioral FinanceExpectation Gap/Expectation Management

  Earnings Revision

  The research report monitors the direction of analysts upgrading or downgrading earnings forecasts for individual stocks or sectors, treating it as an independent stock selection factor. Earnings upgrades typically mean fundamentals exceeding expectations, often leading to short-term alpha.

Key data

• Weekly Change of MSCI China Index-1.5%Performance this week
• Weekly Change of CSI 300 Index+0.8%Performance this week
• Weekly Change of STAR 50 Index+8.1%Significantly outperformed the broad market
• Q1 Earnings Growth Rate+16.0%81% of companies disclosed, YoY growth
• March Industrial Profit Growth+16.0%Year-over-year growth
• Q4 2026 Brent Oil Price Forecast$90/barrelRaised from $80
• 2026/2027 China PPI Forecast1.2%/0.9%Raised from 1.0%/0.6%
• Southbound Capital Net Inflow (This Week)$2.4 billionYear-to-date cumulative total $36 billion
• MSCI China Forward PE11.5x12-month forward
• CSI 300 Forward PE14.8x12-month forward

Impact & implications

The report believes that despite external uncertainties, the Chinese stock market showed resilience in the aftermath of the holiday, particularly in onshore markets and technology/growth sectors. Significant earnings growth provides fundamental support for the market, while the upward revision of PPI forecasts may imply a relief in deflationary pressure and an improvement in the corporate earnings environment. The upward revision of oil price forecasts could benefit the energy sector but requires monitoring of potential impacts on downstream costs. On the capital flow side, continuous inflows in southbound funds reflect mainland investors' recognition of the undervalued nature of HK stocks, while the maintenance of high positions by global funds indicates that foreign capital has not significantly withdrawn. The hint from the A-H share rotation model suggests investors should focus on future relative opportunities in H-shares.

Risks

• External uncertainties and geopolitical risks (e.g., fluctuations in Sino-US relations)
• Input inflation or cost pressures caused by significant volatility in global oil prices
• Domestic macroeconomic recovery falling short of expectations
• Lags in the effectiveness of policy implementation

What to watch

• Further refinement and implementation of subsequent macro policies
• Performance results of remaining companies yet to disclose financial reports
• Specific economic and trade progress following Sino-US high-level communications
• Sustainability of southbound capital flows
• Whether H-shares will outperform A-shares as predicted by the model