Goldman Sachs has raised its 12-month target for the CSI 300 Index to 4,900, up from 4,500. This change follows a 10% increase in the index this month. Goldman identifies several key factors driving this trend, including appealing valuations and solid single-digit profit growth. They emphasize that recent momentum and profit-taking are significant influences on how the index performs.

Factors Supporting Equity Gains

Additionally, aspects like liquidity and valuation expansion are boosting global equity gains. These elements appear to be the primary drivers in today’s market, overshadowing traditional cyclical fundamentals. With the revised target of 4,900 for the CSI 300 Index, we see an opportunity for additional short-term gains. The index has risen about 10% this month, closing near 4,350 as of August 28, 2025. This momentum indicates strong bullish sentiment, paving the way for more upside potential. This positive outlook is supported by recent easing policies from Beijing, including a loan program for developers introduced two weeks ago. Recent data also revealed that China’s Caixin Manufacturing PMI unexpectedly climbed to 51.2 in August, marking a three-month high and signaling possible stabilization. These sentiment and liquidity factors are currently more significant than earlier reports of weaker GDP growth. In the upcoming weeks, we suggest considering out-of-the-money call options on broad China ETFs to take advantage of this upward trend while limiting risk. Look for options expiring in October or November with strike prices around the 4,600 mark. This strategy allows us to benefit from the rally’s momentum while setting a cap on potential losses.

Risk Management Strategies

However, we need to be careful as these gains stem from valuations rather than a strong fundamental recovery. To mitigate the risk of a sudden drop from profit-taking, using bull call spreads is a wise option. This means selling a higher-strike call to fund the purchase of a lower-strike one. While this caps potential profits, it significantly lowers the initial cost. We recall the liquidity-driven rally of 2014-2015, which also experienced a large disconnect from actual economic health, leading to a sharp correction. With implied volatility on the VXFXI index decreasing but still above its yearly lows, some investors are clearly hedging. Therefore, a hedged bullish position seems to be the most suitable strategy in the current market. Create your live VT Markets account and start trading now.

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