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Goldman Sachs has reaffirmed its "Overweight" rating for China's A and H shares, anticipating a potential return of about 20% over the next 12 months, according to a research report released on November 4.

This comes a month after the investment bank upgraded Chinese equities to "Overweight" and highlights a growing consensus among foreign capital on the positive outlook for Chinese assets.

Led by Kinger Lau, Goldman Sachs' Chief China Equity Strategist, the team maintains its optimistic stance, favoring consumer-oriented sectors over manufacturing. They attribute this preference to growth and policy drivers.

Previous Data shows that during the four weeks ended on Oct 30, the A-share market saw a net inflow of $24.385 billion, indicating a significant increase in exposure to China and North Asia by emerging market funds.

The new report suggests that China's macroeconomic growth is set to strengthen in Q4, supporting revenue growth and profitability recovery for the remaining months of the year. "We favor consumer-oriented sectors over those in the manufacturing economy on various growth and policy reasons, and hence our Overweight stance on the Internet sectors (Consumer Tech), Services, and F&B." the report said.

"We maintain our 2024 EPS growth at 12%, partly helped by a low base in 4Q23, and expect 2025 index EPS to rise by 12%. We see balanced risks to our 2025 earnings forecasts for now," the team stated, noting that upside potential may lie in consumer-related stocks benefiting from demand-side stimulus policies.

Strategically, Goldman Sachs recently swapped the tactical preference from offshore to onshore equities, given the latter’s more direct exposures to the supportive measures from the PBoC, the upside optionality of rising domestic retail investors' participation.

The team also highlighted that more than 100 A-share companies have obtained (or have applied for) commercial bank loans totaling 110 billion yuan to repurchase their own shares, which could help extend the strong buyback trend that is running at record-breaking pace in both the A- and H-share markets.

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