Goldman Sachs invents a "new slogan": China's "Ten Private Giants," directly comparable to the "Seven Sisters" of the US stock market

Goldman Sachs' latest trilogy of research reports shows that China is brewing its own "Seven Sisters."

According to news from the Wind Trading Desk, Goldman Sachs' strategy team recently released a significant study, for the first time proposing the concept of "Chinese Prominent 10," directly comparing ten private enterprise giants such as Tencent, Alibaba, and Xiaomi to the "Magnificent 7" in the U.S. stock market, aiming to uncover core assets in the Chinese stock market with long-term dominance potential.

The report indicates that these ten companies span high-growth sectors such as technology, consumer goods, and automotive, representing the "new momentum" of the Chinese economy—artificial intelligence, independent innovation, global expansion, and service consumption upgrades. The total market capitalization of these companies reaches USD 1.6 trillion, accounting for 42% of the MSCI China Index, with an expected compound annual growth rate (CAGR) of 13% in earnings over the next two years.

Goldman Sachs believes that the "Chinese Prominent 10" possesses market dominance potential similar to that of the "Magnificent 7," which may further enhance the concentration of the Chinese stock market and change investors' perceptions of Chinese assets.

"Chinese Prominent 10" Covers Multiple Industries, Balancing Growth Potential and Reasonable Pricing

The "Chinese Prominent 10" selected by Goldman Sachs includes: Tencent (market cap USD 601 billion), Alibaba (USD 289 billion), Xiaomi (USD 146 billion), BYD (USD 121 billion), Meituan (USD 102 billion), NetEase (USD 86 billion), Midea (USD 78 billion), Heng Rui Medicine (USD 51 billion), Trip.com (USD 43 billion), and Anta (USD 35 billion).

These companies cover multiple sub-industries, including interactive media, retail, technology hardware, automotive, dining, entertainment, consumer durables, pharmaceuticals, hotels, and textiles and apparel. They collectively account for 42% of the MSCI China Index, with an average daily trading volume of USD 11 billion, demonstrating significant market influence and investment attractiveness.

Thematically, the "Chinese Prominent 10" represents five major investment trends: artificial intelligence/technology development, self-sufficiency, globalization, service consumption, and improvement in returns for Chinese shareholders.

From a financial data perspective, the "Chinese Prominent 10" shows strong growth expectations and relatively reasonable valuation levels.

Goldman Sachs analysts expect that the earnings CAGR for these companies over the next two years will reach 13%, with a median of 12%. Currently, the average price-to-earnings (P/E) ratio for these stocks is 16 times, with a forward price-to-earnings growth (fPEG) ratio of 1.1 times, compared to the 28.5 times P/E and 1.8 times fPEG of the U.S. "Magnificent 7," making the valuation more attractive.

Additionally, since the low point at the end of 2022, these ten stocks have averaged a 54% increase, with a year-to-date rise of 24%, outperforming the MSCI China Index by 33 and 8 percentage points, respectively, demonstrating their excellent relative performance.

Driven by Policy and Technology, Chinese Private Enterprises Make a Strong Comeback

Goldman Sachs stated in the report that after experiencing nearly USD 4 trillion in market value loss and underperforming state-owned enterprises by 56 percentage points since the end of 2020, Chinese private enterprises are showing strong signs of recoveryThe report shows that the profits and ROE of private enterprises have rebounded by 22% and 1.2 percentage points, respectively, from the low point in 2022, while valuations remain at historical lows, and cash return rates have reached new highs.

On the policy front, the emphasis on private enterprises by the higher-ups has significantly increased.

The private enterprise symposium held on February 17 this year and the introduction of the first Private Economy Promotion Law on April 30 have both boosted the confidence of private entrepreneurs. Indicators compiled by Goldman Sachs also show that the intensity of monitoring the private economy is currently at its loosest level in the past five years.

The rapid breakthroughs in AI technology, especially the emergence of Chinese AI models like DeepSeek-R1, have significantly enhanced market optimism towards technology private enterprises.

Since the low point in mid-January 2025, the Hang Seng Tech Index and MSCI China Index have rebounded by 25% and 21%, respectively.

As previously mentioned by Wall Street Watch, Goldman Sachs had previously predicted that the widespread adoption of AI could increase the earnings per share (EPS) of Chinese companies by 2.5% annually over the next decade and raise the fair value of the Chinese stock market by 15-20%, potentially attracting over $200 billion in incremental capital inflows.

It is worth noting that private enterprises occupy 72% of the market share in the AI-Tech sector defined by Goldman Sachs (semiconductors, power infrastructure, data cloud, software applications, etc.), and are expected to outperform non-tech sectors by 15 percentage points this year and next.

Low Market Concentration, Large Growth Potential for Capital Returns

Specifically, the report shows that the concentration of the Chinese stock market is relatively low, with significant dispersion of returns over the years. The top ten companies in China account for only 17% of the total market capitalization, far below the 33% in the United States and 30% in emerging markets (excluding China).

Goldman Sachs believes that as the existing leading companies in the industry gradually expand their dominant positions, market concentration is expected to rise from 17% to a higher level in the coming years.

Furthermore, the investment interest of private enterprises will support their future organic growth and acquisition growth, thus a more transparent and relaxed merger and acquisition framework should benefit corporate acquisition growth, driving higher industry consolidation.

Over the past decade, the annual turnover rate of the top 10 market capitalization companies in China has only been 12%, indicating the "stickiness" and competitive advantages of leading enterprises.

Goldman Sachs' panel regression analysis of over 7,000 listed companies in China and the United States shows that capital expenditure, R&D investment, and concentration are significantly positively correlated with subsequent stock returns and market share representation—this means that private enterprises that have already occupied profit pools and dominated capital expenditure and R&D in the industry are more likely to maintain or even expand their leading positions in the future.

AI-Driven New Momentum, Overseas Expansion Enhancing Profit Potential

Goldman Sachs also specifically mentioned that AI technology is reshaping the competitive landscape, with large private enterprises standing out in AI investment, development, and commercialization due to their customer base, data accumulation, and investment capabilitiesAccording to the report, the widespread application of AI technology could drive annual profit growth for Chinese enterprises by 2.5% over the next decade, with private enterprises accounting for as much as 72% in its defined AI-tech universe.

Goldman's analysis of over 1,300 earnings call transcripts shows that the technology sector dominated by private enterprises (such as media, software, IT services, and healthcare) has a significantly higher focus on AI compared to its peers. Companies that already have a large customer base and data, are embracing new AI technologies, and are committed to reshaping their business models are more likely to become long-term winners.

In addition, Chinese private enterprises are leading the "going global" strategy.

The report indicates that the proportion of overseas sales for private enterprises has increased from 10% in 2017 to 17% in 2024. Since overseas expansion requires substantial upfront investment (such as labor, production facilities, and marketing), companies with strong balance sheets and cash flows have a competitive advantage.

Goldman noted that some companies have significantly higher gross margins in overseas markets compared to domestic ones (for example, BYD's overseas gross margin reaches 30%). Investors should focus on leading private enterprises with globalization capabilities to share in the dividends of their economies of scale and profit enhancement.

Valuation Bottom and Dual Benefits of Capital Repatriation

Goldman pointed out that despite ongoing fundamental improvements, the valuations of China's "Top Ten Private Enterprises" remain at historical lows.

The report shows that the average trading valuation of the "Top Ten Private Enterprises" is 13.9 times the expected 12-month price-to-earnings ratio, with only a 22% valuation premium over the MSCI China Index, far below the historical average, and significantly lower than the 43% valuation premium level of the seven major U.S. tech companies.

Further, if Chinese private enterprises can achieve a valuation premium similar to that of the U.S., their market concentration will increase from 11% to 13%, adding $313 billion in market value to these companies.

Recent policy shifts and the demand for diversification from the U.S. market have reignited global investors' interest in Chinese assets.

Goldman estimates that among 496 global mutual funds, 86% are underweight in Chinese stocks, with a total managed asset size of $0.9 trillion. If global active funds adopt an equal-weight allocation to Chinese stocks, it could lead to potential inflows of up to $44 billion, with large private enterprises benefiting the most due to their scale, liquidity, and index weight.

At the same time, the rapid growth of Chinese stock ETFs over the past five years means that index-heavy stocks will continue to attract passive funds