Goldman Sachs has significantly lowered its 2025 growth forecast for Chinese equities, citing rising geopolitical tensions following a fresh wave of U.S. tariffs on imports from China. The investment bank’s revised outlook, published on Sunday, points to growing trade war risks, tempered investor sentiment, and slowing earnings momentum across China’s stock markets.
The U.S. administration, under President Donald Trump, recently announced sweeping tariff hikes on major trading partners, triggering a retaliatory move from Beijing, which slapped a 34% tariff on all American imports. The escalation has sent shockwaves across global markets, dragging the MSCI China Index down by 2% and the S&P 500 by 6% in recent sessions.
Goldman’s Downgraded Forecasts
Goldman cut its 12-month growth target for the MSCI China Index to 10%, down from its earlier estimate of 16%. It also lowered its projection for the CSI 300 Index, a benchmark tracking the top 300 stocks on the Shanghai and Shenzhen exchanges, to 17% from 19%.
The downgrade was attributed to increasing macroeconomic risks and anticipated profit-taking, amid what Goldman described as a “high degree of uncertainty” due to the re-emerging U.S.-China trade conflict.
In terms of company fundamentals, Goldman revised down its average earnings per share (EPS) growth forecast to 7% from 9%, and adjusted the price-to-earnings (P/E) ratio for the MSCI China Index to 11.5x from 12x.
“The bull run for Chinese stocks is likely to slow on event risks and profit-taking pressures,” said the team of analysts led by Kinger Kau and Timothy Moe.
“A new trade war and possible negotiations add a cloud of uncertainty over the markets.”
From AI Optimism to Tariff Reality
Earlier this year, optimism surged across Chinese markets, especially after mainland AI start-up DeepSeek launched advanced, cost-efficient large language models. This tech breakthrough fueled a 15% rise in the Hang Seng Index in Q1, following an 18% gain in 2024.
But that bullish momentum has now given way to caution. With trade tensions mounting and inflation fears re-emerging in the U.S., Goldman now expects increased volatility in both Chinese and U.S. markets.
Recession Risks and China’s Fiscal Buffer
The outlook for the U.S. economy has also darkened. Goldman raised its U.S. recession probability to 35%, up from 20%, highlighting the risk of stagflation driven by tariffs and slowing growth.
Meanwhile, Beijing is expected to unveil a massive 2 trillion yuan (US$275 billion) stimulus package, aimed at propping up domestic demand and cushioning the blow from reduced external trade. Goldman anticipates China’s fiscal deficit to rise to 13.8% of GDP, up from 12.6%.
“Policymakers in China are likely to step up easing efforts to support domestic consumption and navigate around external pressures,” the report noted.
Hong Kong Faces Monday Slump
As trading resumes Monday after a holiday weekend, analysts forecast a sharp decline in the Hang Seng Index, with Kenny Tang-hing of the Hong Kong Institute of Financial Analysts predicting a 1% to 4% drop, pushing the index down to 22,600–22,000 range.
Still, Tang remains cautiously optimistic:
“Hong Kong and mainland markets may show more resilience than the U.S., as China has more room for stimulus and policy support.”
However, pressure is also mounting on the yuan, which Goldman predicts could weaken further to support exports. A weaker currency, while helping mainland producers, could negatively impact Chinese companies listed offshore in Hong Kong and the U.S., whose earnings are dollar-denominated.