In recent weeks, a remarkable phenomenon has unfolded in the Chinese financial markets, captivating both domestic and international investorsThe emergence of DeepSeek has acted as a catalyst, stimulating not only market enthusiasm but also drawing significant attention from foreign institutions toward Chinese assetsThis shift has resulted in a series of bullish forecasts for the A-share market, underscoring a growing optimism among international financial entities.

Goldman Sachs has taken a decisive stance by recently elevating its target prices for the MSCI China and CSI 300 indices, reinforcing its positive outlook on A-sharesAccording to reports from First Finance, the investment bank continues to maintain an "overweight" rating on both A-shares and H-sharesIt anticipates that A-shares may outperform their Hong Kong counterparts within the next three months, a prediction echoed by several other foreign financial institutions such as Deutsche Bank, Fidelity International, and Invesco, all signaling their bullishness on Chinese stocks.

The current uptrend in the Chinese stock market has prompted analysts to explore the underlying driving forces behind this price appreciationNotably, the focus has shifted from substantial policy-driven stimuli to the integration and advancement of artificial intelligence (AI) technologiesWith the impending convening of the annual Two Sessions, there is heightened anticipation among foreign investors regarding intensified macroeconomic policy measures from the Chinese government.

Several experts have identified a structural shift in the catalysts for the stock market's rallyDeutsche Bank’s Peter Milliken, head of research for Asia Pacific, expressed confidence that international investors are more likely to increase their allocation to Chinese assets over the medium term, pointing out that the valuation discount of Chinese stocks is gradually dissipating

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He projects that the bull market cycle for A-shares and H-shares has commenced and could potentially reach new heights in the near term.

Milliken emphasized that as China refocuses its policies towards consumer-driven growth, coupled with the benefits of financial liberalization, the outlook for Chinese equities has significantly brightenedHe remarked that the year 2025 will be pivotal for a global reassessment of China's international competitiveness, particularly highlighting the country’s dual advantages in high-end manufacturing and services.

The recurring theme of China's evolving competitive landscape is echoed by Morgan Stanley’s recent upward revision of its projections for the Chinese stock marketAccording to their strategy analysts, the integration of AI technologies will usher in a more sustainable upward momentum for Chinese equities, with a forecast that the MSCI China Index will rise to 77 points by the end of 2025, a significant increase from their previous estimate of 63 points.

Similarly, Invesco underscored the potential for further appreciation within the Chinese stock marketKristina Hooper, Chief Global Market Strategist at Invesco, noted that especially in technology stocks, there appears to be substantial long-term growth potential.

One key question arises: what is driving the current rally in Chinese assets, and how does it differ from previous market recoveries? Hooper pointed out that the initial catalyst for gains earlier in the year stemmed from major stimulus policies, whereas the recent rise has been primarily influenced by factors linked to DeepSeek and AI technologies.

Notably, DeepSeek presents a host of advantages, including enhanced operational efficiency, cost reduction, and advanced computational capabilities, significantly lowering the barriers for AI adoption across various industries in China

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These developments have the potential to benefit numerous Chinese companies, prompting a reevaluation of stock prices.

Fidelity International has also recognized a fundamental shift in sentiment regarding the investment value of the Chinese market due to the burgeoning AI sectorGeorge Efstathopoulos, a fund manager at Fidelity, highlighted that the Chinese stock market underwent significant adjustments at the beginning of 2024, followed by two substantial rebounds driven by new policy initiatives in the first half of the year and in SeptemberHe pointed out that in recent years, many of these recoveries have been primarily contingent upon market expectations.

Efstathopoulos' analysis suggested that the loan growth statistics published in January indicated a promising start for the Chinese market in 2025. The figures not only exceeded market consensus estimates but also highlighted a continuing commitment to policy support.

Amidst these developments, Efstathopoulos also observed a shift in market confidence triggered by the ascent of AI and DeepSeek, which has prompted a notable change in sentiment surrounding the investment value of the Chinese marketHe believes these factors distinctly differentiate this rally from prior price rebounds, particularly emphasizing the significance of AI in both reflecting fundamental improvements and offering new opportunities.

Liu Jinjin also spoke on how AI is bolstering corporate profitability, stock valuation multiples, and the liquidity of investment portfoliosGiven this context, the pivotal question remains: how are foreign investors positioned to establish a robust investment framework for Chinese AI companies?

Reports indicate that Goldman Sachs has categorized Chinese listed companies into two main segments: AI technology stocks and non-technology stocks, with further subdivision into six thematic areas, including semiconductors, power generation, and infrastructure.

As March approaches, foreign institutions are increasingly attentive to projections of intensified macroeconomic policies in China, particularly in light of the forthcoming Two Sessions

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Efstathopoulos suggested that if additional fiscal measures are introduced during this period, market confidence could receive a further boost.

He elaborated that governmental expenditure spurred by an increase in fiscal deficits, along with a rebound in lending patterns, would contribute significantly to the potential repricing of Chinese equitiesEfstathopoulos believes that fiscal and monetary policies aimed at stimulating consumption could also narrow the consumption gap and attract countries seeking new trade partnerships.

Simply put, China holds the "key," allowing it to rebalance the economy through fiscal measures and foster more sustainable, endogenous growth.

Liu’s team argues that while AI injects greater optimism into the economic growth outlook for China, strong policy stimulation remains vital for addressing macroeconomic challenges and driving sustainable stock market gains.

Several foreign banks have already forecasted these upcoming trendsUBS's chief economist for China, Wang Tao, indicated that the Two Sessions would likely maintain the monetary policy tone of "moderate easing" established at the Central Economic Work Conference, advocating for reduced financing costs for enterprises and personal loans, lowered reserve ratios, and enhanced counter-cyclical adjustments, while prompting "reasonable rebounds" in inflation.

Wang further analyzed that during the Two Sessions, the government is expected to uphold the policy framework set in December, aiming to stabilize market expectations with a growth target for 2025 set around 5%. She also noted that in the event of significant external shocks, further policy support could emerge based on the outcomes of the Two Sessions.

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