China indices under pressure for the week, with tech outperforming and real estate dragging

Overview

This report is Goldman Sachs' China weekly portfolio strategy research published on May 25, 2026, covering China index performance, macro and policy news, fund flows, fund positioning, sector/style performance, earnings revisions, and valuation levels. The report emphasizes that China indices were broadly flat to down this week, with weaker-than-expected macro data and southbound outflows weighing on risk appetite, while technology, AI hardware, STAR50, and some growth styles still stood out.

Core views

The core view is that Chinese equities are in a phase of structural divergence in the short term: at the index level, MXCN and CSI300 fell, with real estate and value style being clear drags; growth, information technology, and STAR50 continued to lead. On the macro side, April activity data generally came in below expectations and fiscal spending growth slowed, but month-on-month gains in tier-one city home prices and a narrowing overall home price decline provide marginal support for the property chain. On flows, southbound funds saw a weekly outflow, but Asian and EM funds still show signs of increasing China exposure.

Analysis framework

The report evaluates the short-term risk-reward of the China market through weekly index and sector performance, fund flows, preliminary EPFR fund positioning, 1Q26 earnings tracking, 12-month forward valuations, I/B/E/S consensus EPS growth, the A-H rotation model, as well as Goldman Sachs' proprietary models and barometers.

Methodology notes

• Flows and positioningEPFR fund positioning tracking

  Overweight/underweight and monthly allocation changes

  The report uses preliminary EPFR data covering roughly 50% of disclosed total AUM to compare changes in regional and sector allocations by Asian funds and EM funds relative to benchmarks, in order to assess marginal preferences of active foreign funds toward China, Hong Kong, and other markets.

• Relative market performanceA-H rotation model

  Judging relative returns of A-shares versus H-shares

  The report cites the A-H rotation model, concluding that H-shares may modestly outperform A-shares over the next three months, to help assess allocation preference between offshore China equities and A-shares.

• Valuation methods12-month forward P/E

  MXCN/CSI300 forward price-to-earnings ratios

  The report uses 12-month forward P/E to measure the valuation levels of major China indices, disclosing 11.1x for MXCN and 15.0x for CSI300, and combines this with historical valuation charts to assess market pricing.

• EarningsI/B/E/S consensus EPS growth

  2026/2027 earnings growth expectations

  The report uses I/B/E/S consensus to track 2026/2027 EPS growth for MXCN and CSI300 at 17%/18% and 25%/16%, respectively, to gauge earnings momentum.

• Results disclosure1Q26 earnings tracking

  Disclosure progress and year-on-year earnings growth

  The report tracks 1Q26 earnings disclosure progress for All-China and MSCI China constituents, showing that 89%/78% of the samples have reported, with earnings up 7% and down 2% year-on-year, respectively.

Asset mapping & comparison

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

• MSCI China (MXCN)

  Core offshore China equity index and target of valuation and earnings tracking

  Strengths

  12-month forward P/E is 11.1x, with 2026/2027 consensus EPS growth of 17%/18%, and Asian and EM funds show signs of increasing China exposure.

  Weaknesses

  It fell 2.3% this week, 1Q26 MSCI China sample earnings declined 2% year-on-year, and at the index level it remains affected by weaker-than-expected macro data and risk appetite.

  Comparison

  Versus CSI300, it fell more this week but trades at a lower valuation; compared with A-shares, the A-H rotation model suggests H-shares may modestly outperform over the next three months.

  Risks

  Continued macro misses, larger fund outflows, earnings downgrades, and geopolitical events could weigh on valuation recovery.

• CSI300

  China A-share large-cap benchmark index

  Strengths

  It fell only 0.3% this week, with 2026/2027 consensus EPS growth of 25%/16%, higher than MXCN's earnings expectations.

  Weaknesses

  Its 12-month forward P/E is 15.0x, above MXCN, so valuation upside depends more on earnings delivery and domestic liquidity.

  Comparison

  Performance was more stable relative to MXCN, but the A-H rotation model shows H-shares may modestly outperform A-shares over the next three months.

  Risks

  A-share real estate and value styles significantly lagged; if economic activity and fiscal spending continue to weaken, index earnings expectations may come under pressure.

• STAR50

  Representative index of technology innovation and growth segments

  Strengths

  It rose another 6% this week and is up 33% year-to-date, showing that AI, hardware, and growth themes still have strong momentum.

  Weaknesses

  After a rapid rally, it may face valuation crowding and pressure to deliver earnings.

  Comparison

  It significantly outperformed MXCN and CSI300, and also did better than real estate and value styles.

  Risks

  If AI hardware fundamentals, policy expectations, or fund preferences reverse, downside risk could intensify.

• H-shares/Hong Kong equities

  Core market for offshore China equities and A-H allocation rotation

  Strengths

  The A-H rotation model suggests H-shares may modestly outperform A-shares over the next three months, and some H-share growth and information technology sectors performed strongly.

  Weaknesses

  Southbound flows posted a US$1.7bn outflow this week, funds reduced Hong Kong exposure in some months, and the market is sensitive to external capital and liquidity.

  Comparison

  Compared with A-shares, H-shares usually trade at lower valuations and are more influenced by international capital; the report's model is relatively positive on H-shares versus A-shares.

  Risks

  Continued southbound outflows, weaker Hong Kong market liquidity, Hang Seng Index adjustments, and changes in global risk appetite may bring volatility.

• Real estate (Real Estate)

  A key lagging sector this week and also a focus for earnings revisions and home price data

  Strengths

  The decline in April primary home prices narrowed, while home prices in tier-one cities continued to rise month-on-month; the report notes that real estate saw the largest upward earnings revisions.

  Weaknesses

  H-share real estate fell 5.6% and A-share real estate fell 7.2%, making it one of the main drags in both markets.

  Comparison

  It significantly underperformed information technology, growth, and momentum styles, showing that the property chain recovery has not yet translated into market leadership.

  Risks

  An unsustained recovery in sales and prices, insufficient policy support, developer credit risk, and weak macro data may continue to weigh on the sector.

• Information technology / AI hardware

  One of the strongest sectors and themes this week

  Strengths

  H-share information technology rose 6.4% and A-share information technology rose 6.9%; the report says hardware in China's AI sector outperformed software.

  Weaknesses

  Strong performance may raise short-term crowding, requiring greater tolerance for earnings growth and valuations.

  Comparison

  It significantly outperformed real estate, value style, and the overall indices, and was the main source of structural returns this week.

  Risks

  Key risks include AI capex trends, hardware demand, export controls, valuation pullbacks, and weaker-than-expected earnings delivery.

Key data

• MXCN weekly performance-2.3%CSI300 was -0.3% over the same period; both are week-on-week performance for this week.
• STAR50 weekly performance+6%Year-to-date gain widened to 33%.
• MXCN/CSI300 12-month forward P/E11.1x / 15.0xUsed to measure the forward valuation of MSCI China and CSI300.
• I/B/E/S 2026/2027 EPS growthMXCN 17%/18%; CSI300 25%/16%Based on I/B/E/S consensus.
• 1Q26 earnings disclosure progress and growthAll-China 89% reported, earnings +7% yoy; MSCI China 78% reported, earnings -2% yoyFrom the report's 1Q26 Earnings Tracker.
• Southbound flowsUS$1.7bn outflow this week; US$35bn year-to-dateThe report summary discloses this week's Southbound outflow and the year-to-date amount.
• H-share sector and style performanceInformation technology +6.4%, growth +4.3%; real estate -5.6%, value -5.0%Shows growth and technology outperforming within H-shares, while real estate and value lagged.
• A-share sector and style performanceInformation technology +6.9%, momentum +3.5%; real estate -7.2%, value -5.1%A-shares likewise showed a structure of technology and momentum outperforming, with real estate and value lagging.
• Fund positioningAsian funds are most overweight China/Hong Kong and Singapore; EM funds increased exposure most to China and India over the past 1 month and 3 monthsBased on preliminary EPFR data covering roughly 50% of disclosed total AUM.
• Policy and eventsPutin visited Beijing; China and Russia agreed to further extend the treaty of friendship and cooperation; the U.S. announced the establishment of the US-China Board of Trade and Board of Investment; Hang Seng Indexes Company announced review resultsHang Seng Index adjustments take effect after the close on June 5.

Impact & implications

The report's investment implication points to selective allocation rather than broad-based position adding: technology, AI hardware, growth style, and some H-shares appear relatively better supported, while real estate and value style remain constrained by macro data, sales recovery, and risk appetite. Valuation and earnings expectations provide a medium-term framework, but weekly fund outflows, weaker-than-expected April economic data, and geopolitical and regulatory events may continue to cap upside at the index level.

Risks

• April activity data broadly missed expectations, and fiscal spending growth slowed further, which may weaken confidence in earnings and demand recovery.
• Southbound flows posted a US$1.7bn outflow this week; if outflows persist, valuation recovery in Hong Kong and offshore China equities may be constrained.
• The real estate sector significantly underperformed in both A-shares and H-shares; even though the decline in home prices has narrowed, recovery in sector fundamentals remains uncertain.
• MSCI China 1Q26 sample earnings fell 2% year-on-year; if earnings revisions weaken, current valuation support may erode.
• Policy and geopolitical events such as China-Russia relations and the US-China Board of Trade and Board of Investment may bring expectation volatility.
• CSRC penalties on illegal cross-border securities business show the regulatory environment still warrants attention and may affect cross-border trading and market sentiment.

What to watch

• Subsequent China macro activity data, fiscal spending growth, and the strength of pro-growth policy support.
• Home prices in tier-one cities, nationwide primary home prices, real estate sales, and developer credit conditions.
• Weekly southbound flow direction and EPFR fund allocation changes across China, Hong Kong, India, Korea, and Taiwan.
• The impact of the Hang Seng Index review results, effective after the close on June 5, on passive flows and constituent stocks.
• Whether signals from the A-H rotation model play out, and the relative performance of H-shares versus A-shares over the next three months.
• MXCN/CSI300 12-month forward P/E, I/B/E/S EPS growth expectations, and earnings revisions after 1Q26 results disclosures.
• Whether momentum in AI hardware, information technology, and STAR50 continues, and whether signs of valuation overheating emerge.