Goldman, Morgan Stanley rush to rerate AI-boosted Chinese equities

Hi everyone. I’m Stephanie LI.Coming up on today’s programGlobal financial institutions are bullish on Chinese equities amid vigorous AI push;China’s major industrial firms continue to show improvement in profit in first 2 months.Here’s what you need to know about China in the past 24 hours Wall Street investment banks stepped up their bullish calls on Chinese equities as Morgan Stanley upgraded its target for a second time in as many months and Goldman Sachs said feedback from clients signaled global interest is at the highest level since the market’s previous peak four years ago, partly fueled by China's push for AI Plus initiative.An estimate projects that the widespread AI adoption in China could ramp up more than US$200 billion in inflows into the Chinese stock market."We expect more fundamental upside for Chinese stocks after 20 percent gains year to date. Global funds are motivated to return to China and most investors agree that the Chinese AI story is a game changer," Goldman Sachs said in its latest report.Buying sentiment has improved since analysts at Deutsche Bank published its “China eats the world” report early last month, and global peers chimed in to recommend the nation’s stocks.In particular, Goldman Sachs pointed out that the DeepSeek moment is perhaps a game changer in terms of its impact on investors' perception of Chinese equities. At the macro level, it estimated that AI will start raising potential growth rate in China by 2026 and provide a 0.2-0.3 percentage point uplift to annual GDP growth by 2030."In the equity market, we estimate that widespread AI adoption could boost Chinese EPS by 2.5 percent per year over the next decade via lower costs, higher efficiency, and new revenue opportunities, raise the fair/equilibrium valuations for China equity by 15-20 percent, and potentially usher in over US$200 billion of portfolio inflows," said Goldman Sachs.Morgan Stanley raised the year-end index target for Hong Kong market's Hang Seng index to 25,800, which implies a 9 percent upside from the current market levels. The target for MSCI China was also raised by 9 percent.Morgan Stanley forecasted a larger exposure to the Internet and tech in the Hong Kong market."The A-share market does not have Internet exposure for historical reasons, making the Hong Kong market through Stock Connect a more straightforward option for those who look for AI and technology innovation and adoption plays," said Morgan Stanley.Riding on the latest AI boom, HSBC’s latest survey on the private wealth market has revealed that 55 percent of the surveyed high-net-worth investors expected at least a 5-10 percent increase in the Hang Seng Index, US’ S&P 500 and Singapore’s Straits Times Index by the end of this year.In this year's Government Work Report, China said the country will work to effectively combine digital technologies with China's manufacturing and market strengths under the AI Plus initiative.GBA expressGuangdong Province retained its position as the country's most populous province and top fertility area in 2024, official data showed on Wednesday. The economic powerhouse recorded 1.133 million newborns last year, the seventh consecutive year it has led the nation in births. By the end of 2024, permanent resident population in Guangdong reached 127.8 million, an increase of 740,000. Shenzhen-based Huawei was the second-largest applicant at the European Patent Office (EPO) in 2024 with 4,322 applications, according to the Patent Index 2024. Chinese companies and researchers filed a record 20,081 patent applications at the EOP last year, accounting for 10.1 percent of all applications and securing China's position as the fourth-largest filer globally.Hong Kong has received over 900 applications under the New Capital Investment Entrant Scheme that aims to attract asset owners to settle in the city, according to Secretary for Financial Services and the Treasury Christopher Hui Ching-yu on Wednesday. The 918 applications are expected to bring more than HK$27 billion to the city if all are approved.Industry and company newsProfits of China's industrial enterprises above the designated size fell 0.3 percent to 910.9 billion yuan in the first two months of the year, narrowing 3.0 percentage points from a year earlier, the NBS said today. Their revenue rose 2.8 percent in the period, up 0.7 percentage point from 2024.ByteDance's founder Zhang Yiming surpassed Tencent's Pony Ma and Nongfu Spring's Zhong Shanshan to become China's richest person, with a net worth of USD57.5 billion, according to Bloomberg's real-time Billionaire Index. Elon Musk retains the world's richest person, far ahead runner-up Jeff Bezos.Mixue Group jumped 5 percent today after the Chinese tea drinks chain said its net profit rose 40 percent to 4.5 billion yuan and revenue jumped 22 percent to 24.8 billion yuan last year from the year before.Bank of China's net profit last year inched up by 2.6 percent to 237.8 billion yuan as lower interest rates hurt its income. The state-owned bank's revenue rose by 1.4 percent to 632.8 billion yuan, for the year ended in December 2024. Non-interest income rose by about 17 percent to 183.8 billion yuan.China will promote the transformation of Beijing, Chongqing, Guangzhou, Shanghai, and Tianjin into international consumption centers to expand domestic demand and promote high-quality opening-up, according to a document released by the Ministry of Commerce.China’s National Health Commission and State Administration for Market Regulation today issued 50 national food safety standards and nine amendments, prohibiting the use of terms like “no additives” or “zero additives” to highlight food ingredients.Asia-Pacific highlightsHozon Auto aims to sell 10,000 vehicles in Thailand this year, Sun Baolong, GM of the Chinese NEV startup, said at the 2025 Bangkok International Motor Show. The international version of its Neta X model will start being produced in the country in July.Former Singaporean diplomat and Distinguished Fellow at Asia Research Institute of National University of Singapore Kishore Mahbubani on Wednesday warned of a critical imbalance in global governance at the ongoing Boao Forum for Asia. "The world faces a paradox—rising demand for multilateralism coincides with dwindling supply. This contradiction undermines institutions like the UN.” Mahbubani explained that as our planet shrinks into an interconnected village, the UN serves as our global “village council.” Yet today, we’re weakening this council when we need it most. He noted that US President Donald Trump represents the most aggressively unilateralist US leader in 80 years. His MAGA agenda prioritizes bypassing multilateral constraints, from the UN to trade agreements. Mahbubani called for persuasion, not confrontation, as “the key challenge is convincing Trump and Americans that US greatness hinges on global prosperity. America cannot thrive if the rest of the world falters,” he said.