By Richard Henderson and John Cheng
(Bloomberg) — Goldman Sachs Group Inc. strategists expect
the selloff in Chinese stocks since late January to reverse as
the nation’s economic reopening delivers windfall profits for
businesses.
The US investment bank sees potential for the MSCI China
Index to reach 85 points by the end of 2023, an increase of
about 24% over its close last week, according to a note from
strategists including Kinger Lau. The gauge climbed as much as
1.6% in Monday’s session amid a broad China rebound.
The bullish Goldman forecast comes as investors have been
debating whether the reopening-fueled China stock rally that
began in November has run its course. Escalating geopolitical
tensions and an uncertain outlook for the economic recovery have
sparked losses in February after a three-month surge, though
China bulls say a key political meeting due next month as well
as upcoming earnings will bring fresh impetus.
“The principal theme in the stock market will gradually
shift from reopening to recovery, with the driver of the
potential gains likely rotating from multiple expansion to
earnings growth/delivery,” the strategists wrote. “The growth
impulse should be heavily tilted towards the consumer economy,
where services sector is still operating significantly below the
2019 pre-pandemic levels,” they added.
Chinese equity gauges were the best performers in Asia on
Monday. The CSI 300 Index jumped as much as 2.5% after three
weeks of losses. Construction-related shares were among the
biggest boosts to the onshore benchmark, alongside
telecommunication stocks.
A gauge of China stocks in Hong Kong advanced more than
1.5% after entering a technical correction last week. Shares of
property developers rallied after the nation moved away from
rules restricting land sales by local governments in its latest
effort to revive the housing market.
Meantime, overseas funds returned to selling China’s bonds
in January after a one-month pause. Foreign holdings of Chinese
onshore bonds in the interbank market including sovereigns,
policy bank debt and other fixed-income securities slid by 106.5
billion yuan ($15.5 billion) to 3.28 trillion yuan, the lowest
since 2020, according to Bloomberg calculations based on data
from the China Central Depository & Clearing Co. and Shanghai
Clearing House. That’s also the biggest outflow since May.
Expectations have been rising that the government will
announce more pro-growth policies as the National People’s
Congress takes place in March. The meeting typically sets the
tone for economic policies and during last year’s gathering,
Beijing outlined an aggressive growth target while laying the
ground for more fiscal stimulus.
“Investors have started to look at those sectors that may
benefit from NPC policies, especially infrastructure &
property,” said Steven Leung, executive director at UOB Kay Hian
(Hong Kong) Ltd.
Meanwhile, investors are also keeping an eye on
developments in Sino-American relations after a meeting between
US Secretary of State Antony Blinken and China’s top diplomat
exposed rifts between the two nations over thorny issues.
Some market watchers expect the next leg of China’s
reopening trade to be a slow grind as investors turn their
attention to fundamentals.
“Investors would likely require concrete evidence to
confirm that fundamentals are indeed improving as the cycle
transitions into growth,” the Goldman strategists wrote. As
such, January-February macro statistics, the Two Sessions, and
quarterly earnings from Chinese firms will be important factors
to watch, they added.
To contact the reporters on this story:
Richard Henderson in Melbourne at [email protected];
John Cheng in Hong Kong at [email protected]
To contact the editors responsible for this story:
Brett Miller at [email protected];
Shikhar Balwani at [email protected]
Jiyeun Lee, Shen Hong
To view this story in Bloomberg click here:
https://blinks.bloomberg.com/news/stories/RQDG10T1UM0W
