Goldman Sachs cuts Hong Kong stocks in favor of mainland China AI hardware plays
Goldman Sachs is officially preferring mainland Chinese stocks to those traded in Hong Kong. The investment bank on Wednesday cut its rating on H shares to market-weight from overweight, while staying overweight on mainland China’s A shares — as a way to play artificial intelligence hardware. Most of China’s AI semiconductor companies and their suppliers are traded on the mainland stock exchange. For a second time in a year, Goldman said it’s raising its 12-month target on the CSI 300 — this time to 5,500, from 5,300 previously. That offers nearly 12% upside from Tuesday’s close. The firm still expects 11% potential gains over the next 12 months for the H-share-heavy MSCI China index, but lowered it to market-weight in a regional context. So far this year, the Hang Seng Index is up about 1.5%, while the CSI 300 in mainland China has gained more than 6%. The underperformance is starker when looking at tech. The Hang Seng Tech index has fallen more than 5.5% year-to-date, while the Nasdaq-like ChiNext has surged more than 25% during that time. ‘Hard tech’ The divergence reflects how Beijing’s AI policy has focused more on hardware development than models and software applications. AI hardware has driven 85% of the $3.8 trillion in Chinese AI equity market gains since the DeepSeek moment in January 2025, Goldman Sachs’ Kinger Lau pointed out in the report. China accounts for at least 10% of AI-related market capitalization worldwide, but Chinese AI stocks “are substantially under-owned by international investors,” he said. The gap has shown up in earnings as well. “Hard Tech stocks have delivered strong top-line and profit growth but large-scaled Internet companies have continued to struggle to grow their bottom-line,” Lau said. Highly anticipated Chinese chip and humanoid robot IPOs are also coming to the mainland market, instead of Hong Kong, while H-share AI model companies are planning A share listings.
