Goldman Sachs: Still optimistic about the Chinese stock market, overweight on China (H-shares and A-shares), Japan, and Singapore

According to the Zhitong Finance APP, overnight tariffs have been implemented, with the United States imposing a 10% tariff on all imports and different "reciprocal tariffs" on different countries. Among them, a 34% reciprocal tariff has been announced for China. Goldman Sachs believes that overall, the reciprocal tariffs imposed by the U.S. on Asia are significantly higher than those on other countries and regions, with emerging markets (EM) being impacted more than developed markets (DM), while Canada and Mexico are relatively less affected. Asian stock markets and EM currencies may face significant shocks during the day.

Trading desks have observed clients selling long positions in technology stocks, and hedge funds are massively shorting macro products (ETFs), with S&P 500 futures down 3.5% and the Japanese stock market opening down 3%. Previously, the domestic expectation for the total supply of U.S. tariffs on China was around 60%, but sentiment regarding tariffs has eased somewhat over the past 1-2 months. Therefore, the additional 34% announced this time may still have an impact on sentiment. However, Goldman Sachs' U.S. policy economist Alec Philips also pointed out that the tariffs announced on April 2 are likely to exceed expectations, but there may be more negotiations afterward, and the implementation of tariffs may be lower than announced levels. Therefore, further developments need to be observed.

Regarding the impact on the Asian/Chinese market that everyone is most concerned about, we previously mentioned in our report that based on history, when the S&P retreats more than 10%, the MXAP index also faces a retreat. Therefore, the best scenario for seeing capital inflows into the Asian market is: 1) Economic growth in Asia and EM vs. the U.S. is expanding, 2) A depreciation of the dollar, 3) U.S. stocks trading in a range rather than a one-sided decline, prompting investors to seek returns in other markets. Given that current tariffs are higher than expected, concerns about high inflation and economic slowdown in the U.S. may lead to significant market volatility in the short term.

In the short term, everyone may refocus on high-dividend/shareholder return assets, domestic demand, and safe-haven gold assets. Consumer analysts reaffirm their positive views on Moutai and BUD APAC. Moutai's performance is expected to compound over 24 years, with guidance for a 9% revenue growth in 25, slightly above market expectations, while the sales situation is positive, and this year also emphasizes product mix-driven growth (non-standard ultra-high-end) and the growth of series wines. Leaf expects full-year revenue/net profit growth of 8.6%/10.3%, with the current stock price trading at 21x and a dividend yield of 3.6%. BUD APAC is estimated to recover relatively slowly in Q1 in China, but will begin to accelerate in Q2 (with a lower base), the Korean market is strong, and the new CEO emphasizes control over execution and the strategy of high-end development in China. However, I believe that the short-term increase has already been significant, and further growth may require a more pronounced consumer recovery drive.

March PB Report Released

The March PB report has been released, showing that global fundamental long-short hedge funds have retreated over 2 points, mainly due to beta losses in an accelerated market sell-off environment (TMT/HC funds experienced the largest losses in nearly three years); while systematic hedge funds benefited from the volatile environment, achieving the best Q1 performance in history, with a return of +4.4% in March. Overall capital flows indicate that hedge fund clients are accelerating their reduction of positions (especially short-selling individual stocks), with total/net leverage ratios further declining From a regional perspective, hedge fund clients have shown net outflows in North America (short selling), Europe, and Asia (selling + short selling), with North America experiencing the largest net outflow since January 2022, and short levels increasing across almost all sectors; emerging markets in Asia/China saw significant selling in March, turning the inflows accumulated since the beginning of the year into net outflows.

In April, new additions to the Asia-Pacific gold stocks include China Resources Land (01109) and Weichai Power (02338). It is worth mentioning that the outlook for the heavy truck industry has been upgraded, as “policy benefits + renewal demand + electrification” have opened a new round of industry upcycle; in addition to the industry beta, Weichai's capital expenditure in Europe (holding 47% of KION Group) has also turned from headwinds to potential alpha opportunities this year.

There has been much discussion in recent days about autonomous driving equipped with lidar (vs. pure vision solutions). Recently, Suoteng Juchuang (not covered by the research department) released better-than-expected results, with analysts believing that the company's shipment volume achieved a 110% growth, which is positive for Hesai Technology that we cover. As domestic automakers' recognition of ADAS lidar increases and leading OEMs aim for L3 technology targets (to be achieved by the end of the year), the industry scale is expected to enter a period of rapid growth. In terms of competitive landscape, although automakers may collaborate with multiple suppliers (supply chain risk management), orders will still concentrate on leading companies (Suoteng Juchuang (02498), Huawei, Hesai (HSAI.US), Tudatong vs. other players in the market).

Trading Dynamics 04/02

The Hong Kong stock trading desk is 1.2x biased towards selling. In terms of sectors, clients bought beverages (Chongqing Beer) and sportswear (Bosideng), while selling jewelry/gold. The internet sector is overall biased towards selling, with clients selling Tencent vs. buying Kuaishou; Xiaomi has seen active two-way trading.

Asia Strategy — What Are Investors Watching (Timothy Moe)

Investors are contemplating whether early April (related to the 301 investigation report and potential further tariff measures) will be a risk window or a market clearing event. In the view of our strategists, the answer depends on: a) the market's trading performance during this period; b) the severity of any potential new tariffs; c) the response of affected U.S. trading partners. Taking China as an example, Goldman Sachs' expectations (GSe) and the market's general expectations have already incorporated the currently implemented 20% tariff increase into their economic and corporate profit forecasts. If tariffs are further raised significantly without domestic policy support to offset the impact, it may prompt the market to lower profit expectations and trigger profit-taking in the stock market (the recent MSCI China Index has risen 23% year-to-date).

On the other hand, in many recent communications with investors, a recurring question has emerged: will the backdrop of slowing U.S. economic growth and stock market weakness prompt portfolio funds to flow into Asia (or more broadly, emerging markets)?

Our strategists believe that the best conditions for this to occur are: a) an expanding relative economic growth differential between Asia/emerging markets; b) a weakening U.S. dollar; c) a range-bound U.S. stock market. Our strategists remain optimistic about Asian stock markets, expecting that the MSCI Asia-Pacific ex-Japan Index (MXAPJ 640) has 9% upside potential, with an overweight on China (H-shares and A-shares) In the Japanese and Singaporean markets, focus on alpha themes including stocks benefiting from artificial intelligence, domestic demand-related stocks, defense spending, shareholder returns, and upward revisions of earnings expectations.

China's Consumer Industry — The government's determination to boost consumption enhances market confidence, and policy implementation is key (Michelle Cheng)

Although our analysts still favor the unique opportunities presented by industries/companies that can explore market gaps, as emphasized in their "2025 Consumer Outlook Report," they believe there is upside potential in the following areas: 1) If the job market and corporate profits recover, rising wages will increase households' disposable cash flow; 2) Improvements in social security such as pensions, maternity subsidies, and health insurance will lower the savings rate, thereby increasing households' disposable cash flow; 3) The wealth effect from rising stock markets and stabilizing real estate markets will benefit retail sales in first-tier cities.

In terms of categories, our analysts are optimistic about leading white goods, sports brands, diversified retailers, dairy products, and beverages. The stocks they favor include Anta (02020) (included in the Asia-Pacific Confidence Selected List), Moutai (600519.SH), Midea (000333.SZ), Yutong Bus (600066.SH), Laopai (06181), Mengniu (02319), Qingdao Beer H shares (00168), Master Kong (00322), Juzhi Biotechnology (02367), Miniso (09896), Hisense (000921.SZ), China Resources Beverage (02460), Robam Appliances (002508.SZ), Zhongchong Co., Ltd. (002891.SZ), and Lihigh Food (300973.SZ).

China's Commodities — Research Highlights: Focus on debt resolution and infrastructure construction, as well as 50 million tons of steel (Trina Chen)

Our analysts conducted a survey on China's commodities in the first half of 2025 during the first week of March, during which they held nearly 40 meetings and phone communications with local macro and micro sector professionals. Early feedback confirmed their optimistic expectations for China's construction demand in 2025, as local government debt resolution has driven infrastructure construction activities. Discussions on the supply side indicated that policies will more resolutely address the issue of overcapacity in production management, but the pace of long-term capacity management is slower than expected. Our analysts remain optimistic about cement, copper, and bauxite, hold a negative view on coal, and are gradually turning optimistic about steel and aluminum