(Yicai) Jan. 9 -- Leading financial institutions UBS Group and Goldman Sachs Group expressed optimism about the performance of Chinese stocks this year, with the market getting off to a strong start.

"If I had to sum up the performance of China's capital market last year in one sentence, it would be comprehensively exceeding expectations," Janice Hu, China Country Head of UBS AG, told Yicai. Multiple factors will support its continued upward trajectory, she noted.

The Shanghai Composite Index rose to over 4,000 points on Jan. 5, remaining above the level for four consecutive trading days, while the broader Shenzhen market has gained about 3.8 percent since the end of last year.

Regarding valuation, the price-to-earnings ratio of the MSCI China Index is about 13 times, slightly higher than the average over the past decade, while in terms of capital, investor participation remains below historical peaks, Hu said. From internal and external perspectives, global economic landscape shifts and dual efforts of "going global" and "anti-involution" policies are all favorable to the Chinese market, she added.

"More importantly, the fundamentals of Chinese companies are undergoing significant structural changes," she pointed out, adding that corporate business logic has shifted from scale-driven expansion to improving profitability, technological barriers, long-term value, and innovation capacity.

The earnings growth of the MSCI China Index could reach 14 percent or more this year, with key momentum coming from internet platforms, high-end manufacturing, and companies expanding overseas, Hu said.

Foreign investors' attitude toward Chinese assets shifted to active participation from a wait-and-see approach last year, with some rebuilding their China teams, Hu said.

"The allocation to Chinese assets by the world's top 40 global investors rebounded significantly last year from 2024, but there is still considerable room compared to the average from 2017 to 2021," said Steven Chen, co-head of global investment banking at UBS Securities. Foreign investors show strong interest in Chinese tech and AI stocks, with tech innovation and the AI industry set to become key growth drivers, he added.

In addition, Goldman Sachs predicted in its latest research report that the MSCI China Index will rise 20 percent and the CSI 300 Index, which tracks the performance of 300 top stocks traded on the Shanghai and Shenzhen markets, 12 percent this year.

Against the backdrop of generally low earnings growth, valuation levels, and investor positioning, Chinese stocks offer attractive risk-reward ratios, said Kinger Lau, chief China equity strategist at Goldman Sachs. The market will shift from valuation expansion to earnings-driven growth this year, with technology, media, and telecommunications companies expected to see earnings jump about 20 percent, he added.

Global hedge funds' net allocation to Chinese stocks stands at 7.6 percent, lower than the previous peak of 11 percent to 13 percent, according to statistics from Goldman Sachs. Southbound capital net inflows may reach a record high of USD200 billion in 2026, it predicted.

Editor: Martin Kadiev