Weekly divergence in China markets: offshore under pressure, A-shares rise, mixed macro data

Overview

This report is Goldman Sachs' weekly China strategy tracker, covering China offshore equities, A-shares, H-shares, macro data, U.S.-China relations, earnings and valuation, fund flows, and MSCI index review results. It notes that MXCN fell while CSI300 rose this week, with offshore weakness and onshore strength driving market divergence; on the macro side, April trade and PPI inflation were stronger than expected, while credit data missed expectations, leading to opposite-direction revisions in inflation and aggregate social financing assumptions.

Core views

The core views are: first, near-term Chinese equities are influenced by U.S.-China relations, trade data, weaker credit, and index adjustments, so there is no single clear directional signal; second, the A-H rotation model suggests H-shares may modestly outperform A-shares over the next three months; third, sustained southbound inflows provide some liquidity support for Hong Kong equities; fourth, 1Q26 earnings tracking shows high disclosure completion for both the All-China and MSCI China universes, but with divergent earnings performance; fifth, at the sector and style level, information technology, ROE, and momentum have been relatively strong, while materials, value, and some property-related areas have been weak.

Analysis framework

The report combines weekly market performance review, macro data tracking, policy and news event analysis, earnings and valuation comparison, flow monitoring, the A-H rotation model, index review impact analysis, and sector/style relative performance monitoring to form a multi-dimensional strategy view on China equities.

Methodology notes

• Macro and policy trackingWeekly China macro events and policy monitoring

  Assess market impact by placing trade, PPI, credit, top-level U.S.-China interactions, and policy news within one weekly framework.

  The report simultaneously tracks exports, imports, PPI, aggregate social financing, loan issuance, the China-U.S. meeting, and the premier's meeting with U.S. business representatives to judge shifts in macro expectations, policy expectations, and risk appetite.

• Equity strategyA-H rotation model

  Use growth, macro policy, regulation and geopolitics, company fundamentals, valuation, liquidity, and sentiment factors to assess the relative performance of A-shares versus H-shares over the next three months.

  The chart shows a directional hit rate of 76%, and the current conclusion is that H-shares may modestly outperform A-shares over the next three months.

• Earnings and valuationBottom-up consensus earnings and valuation monitoring

  Based on current constituents, index weights, and Bloomberg consensus estimates, compare earnings growth and 12-month forward valuations for MXCN, CSI300, and sector-level groups.

  The report shows 12-month forward P/E ratios of 11.3x for MXCN and 15.2x for CSI300, while tracking 2026/2027 EPS growth expectations.

• FlowsSouthbound and ETF flow monitoring

  Observe Hong Kong and A-share liquidity through Southbound Stock Connect, ETF subscriptions, and flow indicators.

  The report records about $1.2 billion of net inflows through Southbound Stock Connect this week and about $37 billion year to date, and uses ETF flows and retail sentiment proxy indicators to help gauge market sentiment.

• Index strategyMSCI index review and flow impact analysis

  Track the results of MSCI Global Investable Market Indexes reviews and their effective dates to assess potential passive flow impacts.

  The results of MSCI's May 2026 index review will become effective after the close on May 29, and the report lists this as a key event.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• MXCN

  One of the core tracked China offshore equity indices in this report

  Strengths

  12-month forward P/E is 11.3x, below CSI300; southbound inflows may improve Hong Kong liquidity; H-shares may be supported relative to A-shares by the rotation model.

  Weaknesses

  Down about 2.6% to 3% this week; 1Q26 MSCI China sample earnings were down 5% y/y, and near-term earnings momentum is weaker than the All-China sample.

  Comparison

  Compared with CSI300, MXCN was weaker in the short term but cheaper in valuation; consensus 2026/2027 EPS growth is 17%/18%.

  Risks

  U.S.-China relation volatility, index adjustment-related flow shocks, earnings downgrades, and weaker Hong Kong risk appetite.

• CSI300

  A representative China A-share index and a benchmark for onshore market performance

  Strengths

  Up about 0.9% to 1% this week; consensus 2026 EPS growth is 25%, above MXCN.

  Weaknesses

  12-month forward P/E is 15.2x, above MXCN; the A-H rotation model suggests H-shares may modestly outperform A-shares over the next three months.

  Comparison

  Compared with MXCN, CSI300 has stronger near-term price performance and higher expected 2026 earnings growth, but also a higher valuation premium.

  Risks

  Weak credit issuance, volatile retail sentiment, high valuation, and lagging materials and value styles.

• H-shares

  The relative beneficiary direction indicated by the A-H rotation model

  Strengths

  The model shows H-shares may modestly outperform A-shares over the next three months; sustained southbound inflows provide support.

  Weaknesses

  More exposed to offshore market-wide risk appetite and U.S.-China relations.

  Comparison

  Compared with A-shares, H-shares may be more attractive on valuation and flow dimensions.

  Risks

  A reversal in Hong Kong liquidity, fluctuations in U.S. rates and exchange rates, and geopolitical risk.

• MSCI INC

  The index provider involved in the MSCI index review event discussed in this report

  Strengths

  MSCI index reviews have influence over global passive capital allocation.

  Weaknesses

  This report does not analyze MSCI INC's fundamentals or provide a stock rating.

  Comparison

  MSCI is used in this report primarily as a source of index data and index review information, rather than as a recommended asset.

  Risks

  Index adjustments may create short-term flow volatility, but that is not the same as an investment view on MSCI INC shares.

Key data

• MXCN weekly performanceabout -2.6% to -3%The report text says MXCN fell 2.6% this week, while the title summarizes it as down 3%.
• CSI300 weekly performanceabout +0.9% to +1%The report text says CSI300 rose 0.9% this week, while the title summarizes it as A-shares up 1%.
• April export growth+14.1%Trade growth accelerated and beat consensus expectations.
• April import growth+25.3%Import growth also beat consensus expectations.
• April PPI inflation+2.8%PPI inflation rose significantly, prompting Goldman Sachs to raise its 2026 PPI inflation forecast.
• Goldman Sachs 2026 PPI inflation forecast2.0%Raised from 1.2% previously.
• Goldman Sachs 2026 aggregate social financing growth forecast8.0%Lowered from 8.5% previously, reflecting weaker-than-expected April credit data.
• Southbound Stock Connect weekly flowabout $1.2 billion net inflowSouthbound Connect recorded inflows this week.
• Southbound Stock Connect year-to-date flowabout $37 billion net inflowThe report shows year-to-date Southbound data.
• MXCN 12-month forward P/E11.3xCompared with CSI300's 15.2x.
• CSI300 12-month forward P/E15.2xHigher than MXCN.
• MXCN 2026/2027 consensus EPS growth17% / 18%Based on I/B/E/S consensus estimates.
• CSI300 2026/2027 consensus EPS growth25% / 16%Based on I/B/E/S consensus estimates.
• 1Q26 earnings disclosure progressAll-China 87%; MSCI China 72%Among reported names, All-China earnings were up 9% y/y, while MSCI China earnings were down 5% y/y.
• A-H rotation model directional hit rate76%The current model suggests H-shares may modestly outperform A-shares over the next three months.
• MSCI index review effective dateafter the close on 2026-05-29MSCI announced the results of its May 2026 index review.

Impact & implications

For investors, the report sends a structural rather than one-way signal: stronger trade and PPI data support the nominal growth outlook, but weaker credit data weakens the signals from domestic demand and financing expansion; the divergence between offshore declines and onshore gains shows differences in risk appetite and fund structure; sustained southbound inflows, H-share relative valuation, and the A-H rotation model together support looking for relative opportunities in H-shares; the MSCI index review may also cause passive flow disturbances around the effective date.

Risks

• April credit data came in materially below market expectations, which may reflect weak real-economy financing demand or weaker bank loan issuance.
• U.S.-China relations remain dynamic and prone to multi-dimensional friction, and policy or geopolitical events could alter risk appetite.
• While rising PPI improves the nominal price environment, it may also bring cost pressure and shifts in policy expectations.
• Around the MSCI index review effective date, passive inflows and outflows may create short-term volatility.
• Earnings disclosures show that 1Q26 MSCI China sample earnings were down 5% y/y, suggesting that the earnings recovery of offshore China equities is uneven.
• If southbound flows slow or reverse, support for Hong Kong market liquidity could weaken.
• The model depends on historical factor relationships, and the A-H rotation model's directional hit rate does not guarantee future performance.

What to watch

• The formal effectiveness of MSCI's May 2026 index review after the close on May 29, and the related passive flows.
• Whether subsequent aggregate social financing, loan, and credit structure data confirm Goldman Sachs' downward revision to its aggregate social financing growth forecast.
• Whether PPI inflation continues to rise and how it affects corporate revenue, margins, and policy expectations.
• Whether southbound inflows continue the year-to-date net inflow trend.
• The impact of top-level U.S.-China interactions, trade, and regulatory frictions on the risk premium of offshore China equities.
• After 1Q26 earnings reporting is complete, whether the gap between All-China and MSCI China earnings growth narrows.
• Whether relative performance trends persist across information technology, materials, property, ROE, momentum, and value styles.