As China's equity market trundles higher, talk of a "slow bull market" is developing momentum.
The concept is simple: the Chinese government would like the market to rise but prefers an orderly ascent rather than the wild ride which has often characterized its market behavior.
Now Goldman Sachs has become the latest to board the slow bull market bandwagon with a report published Wednesday forecasting a 30% rally in key indices by the end of 2027. China strategist Kinger Lau makes a case for what he calls a "durable bull run," driven by 12% profit growth and the potential for a market rerating between 5% and 10%. This is a punchy call considering MSCI China MCHI has already rebounded by 81% from cycle lows in late 2022.
Lau also makes the point that "policy is always consequential in impacting stock prices in China given the intricate linkages between the political economy and the capital markets." However, the Goldman's slow bull market investment case rests on four pillars: policy, growth, valuations and money flows.
Goldman Sachs sees 30% upside to the MSCI China Index by the end of 2027.
Like many observers, Goldman interprets the huge policy stimulus enacted in September 2024 as, in effect, a government "put" for investors, meaning they would support the market at that level. Lau cites demand-side stimulus and the latest five-year plan as factors that will rebalance growth and lower external risks (read: tariffs). He also brings up the Nine Measures introduced to develop capital markets and the industry deregulation that has seen the operating environment for privately-owned enterprises, that's 60% of the market, improve of late.
Growth propellants are provided by the development of China's AI potential (as evidenced by the advent of DeepSeek early in 2025), the anti-involution initiative (by which the government intends to lessen destructive competitive practices in industry) and the emphasis the government has placed on export growth. Keeping the renminbi (USDCNY) cheap is an important component of this strategy.
Valuations, in Lau's mind, are not stretched on most metrics. There's still a perception of the "China discount," a concept that began when the Communist party began its tech crackdown around around on 2020. Lau's model predicts a range for the price-to-earnings ratio of the market of 13.7 times for Hong Kong-listed H-shares to 15.7 times for A-shares listed in China, versus the 12.9 times and 14.4 times respectively at present.
Lastly, Lau regards the flow story to be compelling at this juncture. Institutional and retail money is significantly under-allocated to the stock market and he anticipates RMB 6 trillion (approximately $840 billion) of asset reallocation flows from the housing market, fixed income and cash. China's 10-year bond yields BX:AMBMKRM-10Y are a measly 1.78% right now.
Lau expects the default mindset will evolve from "fade the rally" to "buy the dip" and recommends exposure to the ten most prominent stocks, including Alibaba $(BABA)$, Xiaomi (HK:1810), Tencent (HK:700) and BYD (CN:002594), as well as AI plays and A-share small caps.