The Goldman Sachs Asia team has issued a report titled "China: Buy The Dip?" to clients, noting that after a nearly 54% pullback from summer highs, China's domestic AI-related names are approaching early-year levels and increasingly appear positioned for a rebound.
The relevant stock basket's valuation has also compressed from a peak forward P/E of 53x to approximately 25x. Additionally, the top ten state-backed ETFs saw combined net inflows of roughly 260 billion yuan, while global active funds' allocation to China has fallen to 5.5%, near a five-year low.
The Goldman Sachs Asia team recently issued a report to clients expressing a bullish view on China's domestic AI-related stocks, citing significantly compressed valuations, continued policy support, and foreign positioning at historically low levels.
On November 4, analysts Finn Dattenberg-Doyle and Janvi Sharma wrote in a client report titled "China: Buy The Dip?" that China's stock market "rallied sharply today, led by the A-share AI and semiconductor sectors, as investors responded positively to a series of policy support measures and renewed conviction in the domestic substitution theme."
The analysts wrote: "After a nearly 54% pullback from summer highs, China's domestic AI-related names are approaching early-year levels and increasingly appear positioned for a rebound."
The bank is bullish on its own "China Domestic AI Basket" (GSXACADO). This basket covers chip equipment, memory, AI computing power, optical modules, and power-related names, with average daily turnover of approximately $4.3 billion. It has currently fallen about 55% from its early-July high, with the index dropping from around 260 points to near 116 points, erasing nearly all of its 2026 year-to-date gains.
On valuation, the basket's forward P/E at its July peak was approximately 53x, and has now fallen to about 25x, roughly equivalent to levels before the AI rally began in the summer of 2025.
Basket constituents include Piotech Inc, Hangzhou Changchuan Technology, Hua Hong Semiconductor, Advanced Micro-Fabrication Equipment Inc China, among others, with ChangXin Memory Technologies and Cambricon Technologies also included.
The analysts wrote: "Reports that Oracle cancelled chip leasing agreements with related major manufacturers, combined with Nvidia's ongoing supply constraints, reinforce market expectations that Chinese cloud computing and AI companies may increasingly rely on domestic semiconductor suppliers."
The market responded immediately. The Shanghai Composite Index surged 2.2% on November 4, closing at 3,686 points. Cambricon Technologies and Hygon Information Technology each rose more than 10%, NAURA Technology Group gained 10%, SMIC rose 9%, Zhongji Innolight climbed 11%, and Eoptolink Technology jumped 13%.
Policy Support as a Key Basis for Goldman's Bullish View
Analysts noted that "over the past three weeks, the top ten state-backed ETFs saw combined net inflows of approximately 260 billion yuan," and "monthly purchases have reached the highest level in the past three years," with CSI 300 and STAR 50 ETFs absorbing the bulk of the funds.
The bank also listed a series of recent policy actions: regulators convened meetings to advance the stock buyback and relending program, and introduced a $15 billion swap facility tool allowing brokers and funds to exchange assets for central bank liquidity to invest in stocks.
The analysts wrote: Policy-linked ETFs recently recorded one of the largest single-day net inflows in history, while regulators announced additional measures to improve market liquidity, support stock buybacks, and accelerate ETF deployment.
Corporate confidence has also shown signs of improvement — ChangXin Memory Technologies proposed raising its buyback authorization from the previous 1 billion to 2 billion yuan to 2.5 billion to 5 billion yuan.
Foreign Positioning Near Historic Lows, "More Constructive" Signals Emerging
On the positioning front, the bank views this as an important structural factor supporting a rebound. The report shows that "global active funds' allocation to China has continued to decline to 5.5%, near a five-year low," a level at the 6th percentile since 2015, down by two-thirds from the approximately 15% allocation at the 2020 peak, representing a 215 basis point underweight relative to benchmark.
From a positioning perspective, after the recent adjustment, the setup looks more constructive. The report also noted that regulatory uncertainty around data centers may fade over time "as focus shifts to AI development and deployment," while global AI infrastructure spending expectations "remain strong."
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