Goldman

Sachs

PotfoliStrategy

Research18November2024|12:23AMHKT

China

2025EquityOutlook:Policyshowtime

GSMACRO0UTL00K2025Explore>

Apolicy-managedgrowthdeceleration,andeconomicrotation

GDPgrowthwilldecelerateto4.5%in2025from4.9%in2024onGSeconomicforecasts,reflectingthecontinueddragsfrompropertydeleveraging,andslower

exportsonrisingDMtradefrictions.Astrongpolicyputhashoweverbeenactivated,helpfultosoftenthehousingandexternalchallenges,andtofacilitatethe

long-awaitedgrowthre-orientationfromtradeandinvestmenttodomesticdemandandconsumption.

KingerLau.CFA

+852-2978-1224|kinger.lau@GoldmanSachs(Asia)L.L.C.

TimothyMoe,CFA

+65-6889-1199|timothy.moe@

GoldmanSachs(Singapore)Pte

SiFu,Ph.D.

+852-2978-0200|si.fu@GoldmanSachs(Asia)L.L.C.

KevinWang,CFA

+852-2978-2446|kevin.wang@GoldmanSachs(Asia)L.L.C.

ProfitsandChinesecapitalinthedriver'sseat

WeexpectMSCIChinaandCSI300toappreciate15%and13%nextyear,drivenbyourEPSgrowthforecastsof7%-10%andmoderatevaluationgains.Thepolicy

pivothascurtailedleft-tailrisksandre-ratedstocksin2024,andpolicydeliverywillbeneededtodriveprofitgrowthandequitygainsin2025.Thepolicy-induced

shiftsincapitalflowscouldacceleratein2025,withcorporate,onshoreretail,

Southbound,andquasi-governmentinvestorslikelygearinguptheirownershiptothestockmarkets

AligningportfoliowithChinesepolicies

WestayOverweightbothA-andH-shares,adjusttargetstoreflecttariffimpacts,andcontinuetopreferChinaAtacticallywherethesensitivitytopolicyeasingandretailflowsismorefavorablethanH.Sectorally,weadvocateabroad

consumption-tiltintheportfolio,andupgradeHealthcareandBrokersto

Overweight,fundedbyselectOld-EconomyCyclicals.We'demphasizethethemesofgovernmentconsumption,EMexporters/Rmbdepreciationbeneficiaries,selectNewTech/Infraproxies,andincomestrategiestocapitalizeonpotentialpolicy

dividends

Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.ForRegACcertificationandotherimportantdisclosures,seetheDisclosureAppendix,orgoto

WW/research/hedge.html.免費(fèi)入群V:qxcaiji

GoldmanSachsChina

GSChina2025viewsataglance

SummaryofGS2025Chinaviews

KeyThemesfor2025

GDPGROWTH

RealGDPgrowth4.5%in2025

GovernmentConsumption

TOTALRETURNS

15%/13%forMSCIChina/CS1300in2025(LOC);Indextargets75/4600forMSCI

China/CSI300

EPSGROWTH

7%/10%forMSCIChina/CSI300in2025

(LOC);10%/10%forMSCIChina/CS1300in2026(LOC)

VALUATION

11.0x/14.0xtargetfP/EforMSCIChina/CSI300byend-25

FLOWs

US$15/75bnNorth/Southbound

flows

RegionalAllocationChinaSectorAllocation

OVERWEIGHT

Philippinest

Indonesia|JapanOffshoreChina|

ChinaA

Media|Retailing

Insurance|HealthCaretDivFinancialst

Malaysia

Singapore1

Taiwan

Koreal

India

Sharebuybacks/DividendsforallChinalisteduniverse

MARKET-WEIGHT

ConsumerSvcsl|Autost

TechHardware|FoodBevl

Utilities|ConsumerDurablesRealEstate|TransportationSemis

UNDERWEIGHT

HongKongl

ThailandlAustralia

Banksl|CapitalGoodsMaterials|Energy

Telecom

Source:GoldmanSachsGlobalInvestmentResearch

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GoldmanSachsChina

Apolicy-managedgrowthdeceleration,andeconomicrotation

■GSeconomicforecastsshowChineserealGDPgrowthslowingfrom4.9%in

2024to4.5%in2025.By2030,oureconomistsseeChinagrowthsettlingat3.5%,equivalenttoa3.9%CAGRintheremainderofthisdecade,withthe3D

challenges—demographics,debt,anddeleveraging—weighingontrendgrowth.

■Nominalgrowthwillstillbehamstrungbylowabsoluteinflationnextyear—0.8%CPland0%PPlinflationfor2025—reflectingvariousdemandheadwinds,

abundantaggregatesupply,andstablecommoditypricesglobally.

■Housingsalescouldfall9%invalueand4%involumeterms,extendingthe

deepcorrectionto57%sincetheall-timehighsin2021,fromwhichlandsalesandnewstartshavealsoplungedmorethan60%.ThesectorwillremainadragtoGDPgrowth,buttherecouldbeaclearerpathtopricestabilizationinhigher-tiercitiesontheconditionthataroundRmb8tnofcapitalwouldbeprovidedbythegovernmentforhousingdestocking.

■Exportsgrowth,asignificantGDPcontributorinthepost-Covidera,mayfallfrom6.6%thisyearto-0.9%nextinnominalUSDterms,mostlyduetohigherDMtariffsonChinesegoods.Oureconomists'basecasecallsfora20%increaseinUStariffrateonChineseexports,potentiallyshaving70bpsoffChineseGDPgrowth

in2025.

■Thetariffimpactsshouldhoweverbepartiallyoffsetbydomesticeasing(seenextsection)andcurrencydepreciation.GSFXStrategistsexpecttheRmbtoweakento7.50byend-2025andmoderateweaknessonatrade-weightedbasis.By

geography,EMexportscouldfurtherriseongrowingeconomicandpoliticaltiesbetweenChinaandBelt&Roadeconomies,andcontinuedsupply-chain

reorganizationfromChinesecompaniesandMNCs

■Steadybutdiverginginvestmenttrends.InvestmentsforpublicwelfareandNewInfraprojectscouldaccelerateonbettergovernmentfundingsupportasthedebtresolutionprogramtakeseffect,butthoseinareaswhereoversupplyconcernsarepronounced,housingincluded,couldremainsluggish.

■Consumptiongrowthcouldreboundto5.0%in2025from3.8%thisyear,on

thebackof:a)moretargetedfiscalspendingandsubsidyinconsumption-focusedareas;b)furtherclosingofoutputgapsintheservice-orientedsectorsfromtheir

pre-pandemiclevels;and,c)slightboostfrompositivewealtheffectsonhigher

financialassetprices.Overthelongrun,webelievestructuralpolicychangessuchasHukuoandpensionreforms,andsocialsafetynetenhancementsarerequiredtounleashtheconsumptionpotentialgrowth,therebyrebalancingthegrowth

compositionandsustaininggrowth.

18November2024免費(fèi)入群V:qxcaiji3

GoldmanSachsChina

Exhibit1:ChineseGDPmayexpand4.5%in2025onGSEconomicforecasts

2021

2022

2023

2024F

2025F

ChinaGDP%yoy8.4

3.0

5.2

4.9

4.5

DomesticDemandpp6.6

2.5

5.8

3.6

4.4

Consumption%yoy9.0

2.1

8.0

3.8

5.0

GrossFixedCapitalFormation%yoy3.2

3.2

4.9

3.5

4.0

NetExports

ExportsofGoods(nominalUSD)

pp

%yoy

1.929.6

0.55.6

-0.6-4.7

1.36.6

0.1-0.9

ImportsofGoods(nominalUSD)%yoy30.6

0.7

-5.5

2.4

0.3

Inflation

CPI%yoy0.9

2.0

0.2

0.4

0.8

PPI%yoy8.0

4.1

-3.0

-1.9

0.0

Other

CurrentAccount%GDP2.0

2.5

1.4

2.1

1.6

USDCNY(eop)level6.35

7.10

7.15

7.25

7.50

OMO7-DayRepoRate(eop)TSFStockGrowth(eop)

%%

2.2010.3

2.009.6

1.809.5

1.508.2

1.109.0

AugmentedFiscalDeficit%GDP11.4

12.6

11.6

11.2

13.0

WorldGDP%yov6.5

3.2

2.8

2.7

2.7

6.16.37.4

UnitedStates%yoy

EuroArea%yoy

EmergingMarkets%yoy

Note:MarketFXweightforregionalrealGDP

2.53.63.5

2.90.54.1

2.80.83.9

2.50.83.9

Source:HaverAnalytics,GoldmanSachsGlobalInvestmentResearch

Exhibit2:Thehousingdragstoeconomicgrowthwillremaininplacein2025

Percentagepoints

Source:HaverAnalytics,GoldmanSachsGlobalInvestmentResearch

Exhibit4:SupportivepolicyandreformsarenecessarytounleashsignificantgrowthpotentialofChineseconsumption

2023PrivateConsumpt

2023NominalGDPperCapita(US$)

Source:HaverAnalytics,DatacompiledbyGoldmanSachsGlobalInvestmentResearch

Exhibit3:ThedestinationsofChineseexportshaveevolvedinthepast2decades,withB&Randemergingmarketsgainingshare,attheexpenseofdevelopedmarkets

MainlandChinaTradesValuebyRegion(%ofTotalTrades)

Markets

Note:HistoricalB&Rvaluescalculatedwithcurrentparticipatingmemberecon

omies;DM.EM,andFMaN84800

Dthe

ecttodat8

TotalD-M-EM-FMSCIhndexmember

Source:Haver,MSCI,GoldmanSachsGlobalInvestmentResearch

Exhibit5:Apotentialrotationofexternaltodomesticdemandcouldbeunderway

Source:ChinaCustoms,HaverAnalytics,NationalBureauofStatisticsofChina,OECD,Goldman

SachsGlobalInvestmentResearch

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GoldmanSachsChina

Policy:Timefordelivery

■GSpolicyexpectationsfor2025:

a.Monetary:FurthereasinginmonetaryconditionshelpedbyRRRandratescuts(includingmortgages),moderateFXdepreciation,andothercentral

bank'soperations;

b.Fiscal:Deficitspendingtowidenmeaningfullynextyear(GSe:augmentedfiscaldeficitsrisingfrom11.2%in2024to13%in2025)tofacilitatepropertydestocking,localgovernmentdebtswaps,bankrecapitalization,andother

socialinvestmentandconsumptionstimulusprograms.

c.POERegulation:OurproprietaryPOERegulationProxyreaffirmsourviewthatthetighteningcycleisbehindus,andregulationcouldbeatailwindforseveralprivate-economy-orientedsectorsgoinginto2025.

d.Equities:WeexpectthemajorityofnewpolicyandregulationchangestobelargelyconsistentwiththekeyobjectivesoutlinedintheNineMeasures

document,whichemphasizesshareholderreturns,investorprotection,andqualityoflistedcompanies.

■Thiseasingcycleisdifferent,alongthedimensionsof:

a.AsclearlycommunicatedintheSepPolitburoreadout,policyobjectivehasturnedfromcontainingrisktoupholdinggrowth;

b.Policyresponsesarecoordinatedanddeliveredinapackageformasopposedtoapiecemealmanner;

c.Increasingpolicyfocusondemand-sidemeasures,andhencethepolicymultipliereffectscouldbemoredomestic-orientedwithlowerexternalspillovers;

d.Thestimulusmeasuresareledandsponsoredbythecentralgovernmentandthecentralbank;

e.Unprecedentedandinnovativeinitiativestobolsterthestockmarket,

withthePBoCundertakingequityrisksviaitsswapandrelendingfacilities.

Policycyclesintransition:ThepolicypivotinSeptemberhastakenoutthe

extremeleft-tailscenariosembeddedinstockprices,helpingtore-ratestocks.Sincethen,muchofthemarketvolatilitycanbeattributabletoinvestorexpectation

changesregardingthetiming,scale,andspecificityoftheanticipatedfiscalstimulusannouncementsinvariouspolicymeetings.Conceptually,thepolicycyclehas

transitionedfromanexpectationphasetoaconfirmationstagewherepolicy

detailsarenecessarytojustifyinvestors'morebullishpolicyviews.TheDecemberCEWCandnextyear'sTwoSessionswouldbethepossiblevenuesforadditionalinformationtobemadepublic.Afterthat,thecyclewilllikelymorphintoan

implementationstageinwhichfundamentalimprovementsatboththemacroandmicrolevelswoulddeterminethepathofthestockmarket.

18November2024免費(fèi)入群V:qxcaiji5

GoldmanSachsChina

20bpOMOratecut

Raisinggovernmentdebtlimitbya100%fundingproportioninthe

relativelylargeamounttofacilitatelocalRmb300bnaffordablehousingre-

governmentdebtresolutionlendingpolicy(was60%)

Rmb300bnrelendingprogramfor

bankstosupporlistedcompanies'sharebuybacks

30bpMLFratecut

Subsidizedconsumergoodstrade-in

andequipmentupgradeprogram

50bpavg.reductioninexisting

mortgagerates,loweringannual

interestexp.byRmb150bn

PoliciesonM&Aandmarketvaluemanagementtoenhancequalityofistedcompanies

Follow-upLPRadjustment

SmallsubsidiesfordisadvantagedAllowingbankstosupportlandreservePoliciesonpromotinglong-term

groupsandstudentsbuybacksbyqualifiedentitiescapitalinvestorsparticipation

28

Rmb10tnlocalgovemmentbond

ssuancefordebtresolutionover2024-Easingpurchaserestrictionintier-Possiblestabilizationfund

onecities

*RmbItnCGSBforbank

recapitalization(Bloomberg)

*RmbitnCGSBforconsumpton(Reuters)

Two20bppolicyratecutsinQ2andRMB4.7tnLGSBfordebtresolution,

Q42025,andtwo10bppolicyratelandrepurchases,reginalbank

utsinQ2andQ42026recapitalizationandinfrastructure

Rmb8tn(US$1.1tn,5.8%of2025E

GDP)additionalfiscalsupportfrom

thegovernment

Policiesemphasizesshareholderreturns,investorprotection,and

qualityoflistedcompanies

GSExpectation

c

Exhibit6:Thelatesteasingpackagecontainspoliciesthatspanacrosthemonetary,fiscal,property,andequitymarketcohorts,andwitha

strongeremphasisondemand-sidemeasures

50bpRRRcut,providing~Rmbitn

iquidity(hintedanother25-50bpbyear-end)

Rmb400bnadditionalfundingfromthe10pptreductioninminimum

Rmb500bnswapfacilityfornon-bankfinancialinst.tobuystocks

unspentbondissuancequota

accumulatedfrompreviousyears

downpaymeotratioto15%for2nd

homebuyers

MonetaryFiscalPropertyEquityMarket

Announced

y

Two25bpRRRcutsinQ1andQ3

RMB2.5tnULTCGSBformajor

projects,bankrecapitalizationand

consumption

AllowtheCNYtodepreciate

somewhattopartlyoffsetthetariff

mpact

Note(1):*representsunconfirmedmeasuresreportedbymedia

Note(2):Greenhighlightsindicatedemandsidestimulus

3.6%officialdeficitand

augmentedfiscaldeficit

13%

in2025

Source:PBOC,NAFR,CSRC,Bloomberg,Reuters,GoldmanSachsGlobalInvestmentResearch

Exhibit7:Moreeasingacrossthekeypolicycohortsisnecessarytosupportgrowth

Monetary=FClex-Equity,Fiscal=AugmentedFiscalDeficit(Reversed);Regulation=POERegulationProxy:Property=PropertyRiskBarometer

Source:GoldmanSachsGlobalInvestmenResearch

Exhibit8:Marketexpectationsonfiscaleasinghavere-ratedinthepast2months

Chinafiscaleasingsizebasedonnewssearch

Note:basedonFactivanewssearchduringtheweekendingatthedate;keywordsinclude(財(cái)政/fiscal]and(X萬億/Xtrillionl;onlymentionsintheheadlinesandfirstparagraphsarecounted

Source:Factiva,GoldmanSachsGlobalInvestmentResearch

18November2024免費(fèi)入群V:qxcaiji6

GoldmanSachs

China

Exhibit9:Chinaequityhasrecentlydeliveredoneofthemostpowerfulralliesonrecord

Exhibit10:Empiricalevidenceshowsthatthesustainabilityoftherecoveryispredicatedonearningsgrowthanddelivery

MSCIChina(HKD,RebasedPriceAveraged)

TradeDays(0=RallyStartDate)

Source:FactSet,MSCI,GoldmanSachsGlobalInvestmentResearchSource:FactSet,MSCI,GoldmanSachsGlobalInvestmentResearch

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GoldmanSachsChina

Earnings:Tariffandpolicytug-of-war

■Weforecast7%and10%profitgrowthforMSCIChinaandCSI300in2025,

belowsell-sideconsensusof9%and14%,anddownfrom12%and12%fromourpreviousestimates,largelyduetothetariffrisks.

■Inadditiontothedirectimpactsonrevenuegrowthandprofitabilityforexporters,highertradetariffscouldpressurethebroadereconomyviatheinvestmentandconfidencechannels,andFXtranslationlossesforoffshorelistedequities.

■Policyeasing,fiscalstimulusinparticular,couldpartiallyoffsetthetariffimpacts,asweestimateeveryRmb1tnworthofdeficitspending(~0.8%ofGDP)could

boostnextyear'sEPSgrowthby2pp.

■Toplinein2024hasbeenhinderedbylowinflation,growing3%yoy,the4thslowestinthepast2decades.Weexpectrevenuetogrow6%in2025,insyncwithGSnominalGDPgrowthforecast.

■WeexpectROE/marginstobeflatyoyin2025,givenlowereffectivetaxrates,

fadingimpactsfromone-offlossesfromdevelopers,butlowerfinancialleverageandstableassetturnoverratios.

■Netbuybackratiohasimprovedto0.8%inthepast12months,thefirstpositivereadingever,andwillbeaccretivetoEPSifthetrendextendsandtherepurchasedsharesarecanceled.

■Byeconomicthemes,consumptionandinfrastructurewilllikelybekey

contributorstomarketprofitsgivenpolicysupport,whiletheearningsdragsfromtheailinghousingmarketcouldmoderateasthelow-baseeffectsstarttokickin.

■Supply-siderationalization,policy-driveninsomecases,couldalsobenefitearningsviahealthiermargins,notablyAutos,Solar,andafewothercapital

intensiveindustrieswhereprofitabilityhavebeenunderpressureduetoovercapacityconcerns.

■Sectorally,weexpecttheTMTsector'searningstogrowbyaround12-13%nextyearonfurthermonetizationenhancements.Consumersectors,particularlythosethatareexposedtotheserviceeconomy,mass-marketconsumption,and

governmentspending,lookwell-placedtobenefitfromincreasingpolicyfocusondemand-sidemeasuresandpossiblystrongerfinancialpositionsforlocal

governments

■Onthemoreconcerningside,BanksarepronetoearningscutsoncontinuedNIMandpersistentNPLpressures,andtheprofitoutlookforMaterialsandother

manufacturingindustrieswillremainchallenginguntildisinflationsubsidesand/ortradeuncertaintyfades.

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GoldmanSachsChina

Exhibit11:0urEPSgrowthestimatesarebelowconsensusreflectingthepotentialtariffimpactsoncorporateprofits

MSCIChinaearningsgrowth(%yoy,inHKDterms)

Bearcaseisbasedonassumptions:1)60%additionalUStariffswithnopass-throughtoUSconsumers;2)USDCNYdepreciatesto7.7;3)noadditionalfiscaloffsetin2025

Source:MSCI,FactSet,Wind,GoldmanSachsGlobalInvestmentResearch

Exhibit13:Mid-single-digitrevenuegrowthandslightmarginexpansiondriveourexpected7%EPSgrowthfor2025

Salesgrowth(%yoy)Netmargin(%)

netmarginbasedoncurrentMSCIChinaconstituents

Source:MSCI,FactSet,GoldmanSachsGlobalInvestmentResearch

Exhibit12:Earningshittromhighertarifscouldbepartially

softenedbyamorecompetitiveRmb,andmoreforcefulpolicyeasing

Estimatedimpactsto2025EMSCIChinaearnings(inHKD)

20%addtionalUStariffsonChinesegoods&50%pass-throughtoUSconsumers

USDCNY

8.00

7.80

7.50

7.30

7.20

25EFiscalstimulus(RMB

0tn

-10.7%

9.9%

8.6%

7.6%

7.1%

1tn

-8.7%

7.9%

6.6%

-5.6%

-5.1%

2tn

-6.7%

-5.9%

4.6%

-3.6%

-3.1%

2.5tn

-5.7%

4.9%

-3.6%

-2.6%

-2.1%

3.5tn

-3.7%

-2.9%

-1.6%

0.6%

-0.1%

4.5tn

-1.7%

0.9%

+0.4%

+1.4%

+1.9%

5.5tn

+0.3%

+1.1%

+2.4%

+3.4%

+3.9%

Source:MSCI,FactSet,Wind,GoldmanSachsGloballnvestmentResearch

Exhibit14:StrongbuybacksshouldbeaccretivetoEPSgrowth

NetIssuanceas%ofMktCap

Representsthenetchangeinthecarryingvalueofcommonandpreferredstock

Source:FactSet,MSCI,GoldmanSachsGlobalInvestmentResearch

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GoldmanSachsChina

Exhibit15:Divergentrevisiontrendsacrosssectors,with

Internet/Consumerleading,butbanksanddeveloperslagging

EarningsRevisionstrends(CNY,2025)

SectorbasedonMSCIChinaconstituents

Source:FactSet,MSCI,GoldmanSachsGlobalInvestmentResearch

Exhibit16:Byeconomicthemes,consumptionandinfrainvestment

willlikelybethekeyearningsgrowthdriversin2025Implied2025Eexpectedearningsgrowth

Cohort

Property

ExportsFAl/Completion

InfraFAI

Consumption/Services

Macroinputs

2025GSe

-10%/+3%0.9%7.5%5.0%

Beta

0.9x1.4x0.5x1.8x

Implied25E

earningsyoy

-2%-1%+8%+10%

Earnings

weight

15%10%32%42%

Sum

→+7%

Earningsweightbasedonresultsin1H24:Activityinputs:pertyFAIbyeconomicsteamandcompletionbypropertyteam:otherconsumptions/servicesconsumptionunderGDPbreakdown(inrealterms,addingCPIinflationforecasttoconverttonominaltermbefore

calculatingimpliedearningsgrowth).Sensitivitybasedonregressionresultsofcohortearningsgrowthonmacroinputsusingannualdatasince2010(addingintervals,earningsgrowthinCNYterm

Source:FactSet,Wind,NBS,GoldmanSachsGlobalInvestmentResearch

Exhibit17:Wearegenerallymoreconservativeontheprofitoutlookfortheproperty-centricandmanufacturingsectors

MSCIChina2025EEPSGrowthForecast(inHKD)

GICSIndustryGroups

24EEarningsWeight

25E

Consensus

25EGS

Top-down

25EGS

Top-down

Cons(pp

InternetandConsumer

Cons.Retail&Svcs.

22%

15%

13%

-1

Internet/Media&Enter.

15%

13%

12%

-1

Staples

3%

15%

14%

-1

Autos

1%

66%

52%

-13

Financials

Banks

27%

4%

1%

-3

Insurance/OtherFin.

10%

(1%)

(4%)

-3

Property-

centric

CapitalGoods

4%

14%

11%

-4

Metals&Mining

2%

18%

18%

0

RealEstate

2%

15%

13%

-2

Chemicals/OtherMat.

1%

45%

42%

-3

Technology

TechHardware

2%

24%

19%

-5

Semiconductors

0%

NM

NM

Telecom

0%

17%

14%

-2

Software&Svcs

0%

50%

56%

6

Others

Energy

4%

5%

2%

4

Utilities

3%

11%

8%

-3

Transportation

2%

(15%)

14%)

HealthCare

1%

31%

29%

-1

MSCIChina

100%

9%

7%

-2

Source:MSCI,FactSet,IBES,GoldmanSachsGlobalInvestmentResearch

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GoldmanSachsChina

Valuations:Atwo-factorpricingregime

■MSCIChinaandCSI300currentlytradeon12mfP/Emultiplesof10.1xand

13.5x,at-0.7and+0.7s.d.,andinthe27%ileand78%ileona10-yearlookback

basis.Thiscomparesto18.6xand17.1xwhenthemarketsreachedtheirrespective

recent-cyclepeaksinFebruary2021,and8.4xand10.5xbeforethestimulus-triggeredrallytookoffinmid-September

■MSCIChinaiscurrentlypricedat46%and23%discountstoDMandEM

ex-Chinaequities,bothatthehigh-endoftheirrespectiverangesdespiteasimilarifnotbetter,earningsgrowthprofilefornextyear.Thisimpliestousthatthe

perceivedERPremainselevatedforChinaequity,and/orinvestorsarereluctanttounderwritelong-termChinesegrowthperhapsduetovariouspolicyand

geopoliticaloverhangs.

■Ourend-2025targetfP/EforMSCIChinaandCSI300is11xand14.3xrespectively,supportedbythefollowingvaluationmethodologies:

a.OurmacroPEmodelsuggeststhatMSCIChinashouldtradeat11xfP/E

(12.5xonamedianstockPEbasis)andaround14xforCSI300byend-2025,

afteraccountingforthepossiblegrowthandliquidityspilloversfromhigherUStariffsandpotentialChinesefiscalpolicyreaction—weestimatethatevery

Rmb1tnworthofadditionalfiscalstimulus/deficitspendingcouldimproveindexPEby0.7pts,everythingelsebeingequal;

b.Pluggingournormalprofit(ROEataround12%)andtrendprofitgrowth(8%)assumptionsintoourDDM-basedvaluationframework,weestimatethatthetheoretical,intrinsic-value-derivedP/EforMSCIChinawouldbeataround10.5x;

c.SpecificallyforecastingthefairERPonanex-antebasisbasedonlong-termgrowthandgeopoliticalriskfactors,weobservethattheA-sharemarketis

probablyundervaluedby3%whereastheoffshoremarketisfairlyclosetoitsequilibriumlevels;and,

d.AmodifiedversionoftheFedModelthatincorporatestherisk-freerate

differentialsbetweentheUSandChinashowsmodestvaluationdownsidefortheoffshoremarketonhigh10Ybondyields,butcloseto10%upsideforAsharesonrecord-lowCGBrates.

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GoldmanSachsChina

Exhibit18:Valuationshavere-ratedtoaroundmid-cyclelevels

12mforwardPE(x)

Source:FactSet,GoldmanSachsGlobalInvestmentResearch

Exhibit20:0urtop-downPEmodelpointst