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(Seoul=Yonhap Infomax) Min Jae Lee—Goldman Sachs has assessed that Chinese artificial intelligence (AI) stocks are undervalued relative to their US counterparts, indicating further upside potential.
According to the Hong Kong South China Morning Post (SCMP) on the 24th, Kinger Lau, Chief China Equity Strategist at Goldman Sachs, stated, “The AI-driven rally in Chinese stocks is by no means a bubble,” explaining, “There is still room for Chinese technology companies to expand both valuations and earnings by focusing on applications.”
Lau noted, “Unlike the US, which is focused on computing power, China’s approach of investing more capital in AI applications has provided investors with reassurance that, at least in the short term, Chinese firms may be better positioned to monetize AI.”
He emphasized, “Compared to the US, Chinese companies focused on applications are still trading at much more reasonable valuation levels. From a valuation perspective, the Chinese AI stock boom is far from a bubble.”
Goldman Sachs’ analysis shows that the combined market capitalization of China’s top 10 technology companies stands at $2.5 trillion, while their US counterparts total $25 trillion—a tenfold difference. US firms account for about 40% of the S&P 500’s market capitalization, whereas Chinese companies represent roughly 15% of their domestic market’s total capitalization.
Lau added, “The AI story will unfold in China. Since the AI investment cycle in China lags the US by about 18 months, there is greater growth potential, with a higher likelihood of translating into earnings and revenue growth.”
However, he cautioned, “While China’s bull market is expected to continue, the main driver of stock price gains is likely to shift from valuation expansion to earnings recovery next year, which could moderate the pace of gains.”
Goldman Sachs forecasts that Chinese corporate earnings will grow by 12–13% next year, a significant acceleration from this year’s 2–3% estimate.
The MSCI China Index, after hitting a low at the end of 2022, has seen its price-to-earnings ratio (PER) rise to 1.48. As a result, further upside from a valuation perspective is expected to be limited to about 5–10%. However, Goldman Sachs projects that Chinese equities could rise by approximately 30% over the medium term through 2027.
Lau attributed the anticipated earnings growth to AI investment, GDP expansion, policies to prevent economic regression, and the global expansion of Chinese companies.
He noted, “Chinese companies are aggressively expanding their businesses in global markets, with about 15% of their revenue generated overseas. Given that US companies derive 30% of their sales abroad, there is room for Chinese firms to further increase their market share.”
Lau also expects that strong capital inflows from both domestic and international investors will support a sustainable bull market.
“While individual investors are diversifying their portfolios away from the real estate market, institutional investors are responding to calls to allocate more to onshore equities,” he added.
mjlee@yna.co.kr
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