Market rally still has upside potential

Widespread AI adoption could boost EPS of China shares 2.5% annually

The Chinese mainland stock market rally has room for more growth as artificial intelligence applications are set to boost productivity across various sectors, pointing to an almost 20 percent upside potential over the coming 12 months, prominent investment banks and asset managers said.

Nevertheless, they said that policy efforts to further reinvigorate domestic demand and confidence are still necessary for sustaining the gains, with the equity transfer of four State-owned financial firms a good sign.

Goldman Sachs said in a report on Monday that widespread AI adoption could boost the earnings per share of Chinese equities by 2.5 percent annually over the next decade. Such improving growth prospects and perhaps a confidence boost could raise the fair value of China equities by 15-20 percent.

These have prompted the U.S. investment bank to raise its 12-month CSI 300 Index target from 4,600 points to 4,700 points, implying a potential 19 percent price increase from now, the report said, with sectors of data and cloud, as well as software and applications, preferred as implementation gathers pace.

"Assuming Chinese companies are able to grow their aggregate market cap by $3 trillion in the ensuing 12 months, we estimate that the Chinese AI story could attract as much as $200 billion of net buying to the stock market, helping to partially reverse the conservative and underweight allocations in China equities from asset managers globally."

Sharing similar sentiments, Raymond Ma, chief investment officer for the Chinese mainland and Hong Kong at global investment management company Invesco, said that the application of Deep-Seek will further boost various sectors like e-commerce, cloud services, consumer electronics, semiconductors and autos.

The benchmark Shanghai Composite Index edged up 0.27 percent, reaching 3355.83 points as of Monday's close. The rise was led by sectors that are integrating AI technologies in their businesses, especially education, healthcare and humanoid robotics.

Further strengthening investor sentiment was news that Central Huijin Investment, an arm of China's sovereign wealth fund, is set to take control of four major State-owned financial institutions.

The move, according to analysts, will enhance the ability of State-owned distressed asset managers to resolve risks and help the so-called national team — a group of State-backed financial institutions acting as a stock market stabilizer — to better perform its role, while igniting hopes of potential mergers among relevant investment banks.

On Friday, three State-owned stressed debt managers — China Cinda Asset Management, China Orient Asset Management and China Great Wall Asset Management — along with China Securities Finance Corp, which provides margin financing to securities firms and is part of the national team, announced that their controlling shareholder, the Ministry of Finance, will transfer its shares to Central Huijin Investment at no cost.

The announcements caused relevant shares to rise on Monday, with Cinda Securities up 7.28 percent.

In an article published in Study Times on Monday, the State-owned Assets Supervision and Administration Commission of the State Council vowed efforts to strengthen market value management of centrally controlled State-owned listed companies, calling for "strategic restructuring and specialized consolidation".