Chinese stocks face limited downside next year as the market has factored in trade tension risks, while domestic stimulus measures offer a buffer against any further sell-off, according to Goldman Sachs Group Inc.

While Donald Trump’s planned tariffs on Chinese imports will impact earnings, “the market has already given companies vulnerable to these risks a discount in valuation”, the bank’s China portfolio strategist Si Fu told Bloomberg TV on Monday. US investors’ holdings in related firms have declined, she added.

Market participants expect more concrete measures to boost consumption after China’s retail sales growth unexpectedly weakened in November. Equity valuations have come off their October peak, and the current levels can be well supported by potentially improving fundamentals for companies, Si said.

Goldman Sachs forecasts a 7% earnings growth for the MSCI China gauge in 2025, and a 10% expansion in 2026. The index has risen more than 15% this year, set for its first annual gain in four years.

In the unlikely scenario of a 60% US tariff hike on Chinese goods, Si expects a 10% valuation downside from the current level.

Goldman strategists are watching for more measures from the government next year that would support consumption, including the issuance of more coupons and subsidies. 

  - Bloomberg