(Yicai) July 29 -- Goldman Sachs Group has raised its 12-month target for the MSCI China Index to 90, signaling a 12 percent upside from the latest closing price.

The US investment bank upgraded its forecast from 85 as the MSCI China Index [MS302400], which is denominated in US dollars, closed at USD80.03 yesterday.

The revised outlook reflects easing global trade tensions, stronger-than-expected second-quarter gross domestic product data, a recovery in Hong Kong's initial public offerings, record-high southbound capital inflows, and renewed interest from foreign investors in Chinese assets, The Paper reported yesterday, citing the latest research note by Liu Jinjin, chief China equity strategist at Goldman Sachs.

Following a consolidation phase that began last month, the MSCI China Index and the CSI 300 Index have recently reached a four-year high and a year-to-date high, respectively, according to the report.

International investors are refocusing on China, with record-level interest observed in June and July based on feedback from global roadshows. While emerging market and Asia benchmark mutual funds have slightly increased their China exposure, hedge funds and global active fund managers remain near cyclical lows in allocation.

This renewed interest is driven by the desire to diversify away from US assets, expectations for Chinese yuan appreciation, the growth of China's artificial intelligence sector, anticipated easing of regulatory measures targeting private firms, and China’s deep valuation discounts compared with global peers.

Moreover, Goldman Sachs has raised its full-year forecast for southbound net purchases to USD160 billion from USD110 billion, citing robust demand from mainland investors for high-return opportunities, AI-related exposure, and a rebound in Hong Kong IPOs.

Since January, mainland capital has flowed into Hong Kong stocks at a record pace. As of yesterday, southbound net inflows had reached around CNY829.3 billion (USD115.5 billion), surpassing last year’s annual total.

The investment bank noted that A-shares and H-shares are not mutually exclusive, as both markets offer unique investment themes for a diversified, China-focused portfolio. H-shares tend to focus on AI technology, while A-shares are noted for stable dividends and alpha potential among small-cap stocks.

Editor: Emmi Laine