Goldman Sachs analysts forecast a 24% rise in Chinese stocks as the country consolidates in its growth phase

Analysts at Goldman Sachs believe Chinese stocks could rise 24 percent by the end of the year. According to the banking giant’s strategists, the 24% rise could come as the country stabilizes the phase of its stringent zero-covid policy.

Commenting on the MSCI China Index’s potential growth since the country reopened, Kinger Lau, chief China equity strategist at Goldman, explained:

“We believe the main theme of the stock market will gradually shift from reopening to recovery, with the driver of potential gains likely to shift from multiple expansion to earnings growth/delivery.”

As the country’s growth phase continues, Chinese stocks have been on the rise since the Lunar New Year earlier this year. For example, the MSCI China Index was up about 60% at the end of January from its October low. However, at Friday’s close, the index was down 8% from its late January peak and is now near market correction territory. This phenomenon occurs when an index retreats more than 10% from its recent peak.

Goldman Sachs initially cut its outlook on the Chinese economy and stocks last July

Goldman Sachs had cut its outlook for the MSCI China Index to zero growth last July but now expects stocks to grow. In addition, the U.S. banking giant expects China’s economy to grow by 5.5 percent during 2023. According to Goldman, this projected growth would benefit from the massive help of second and third quarter growth of 9% and 7% respectively. Arguing that Covid in China is “probably in the rearview mirror“, the bank’s strategists remain incredibly optimistic about economic growth. According to Goldman analysts, the ensuing growth spurt will “think of a transition from the hope phase to the growth phase“. Moreover, although this transition is part of a “typical stock market cycle“, the strategists add a caveat. In their view, recent manufacturers’ purchasing indices and consumption levels show “clear signs of normalization in activity, albeit from a low base.

Pointing to the more than 3 trillion yuan ($437 billion) in excess savings by Chinese households this year, Goldman strategists write:

“The growth momentum is expected to be heavily skewed toward the consumer economy, where the service sector is still operating significantly below pre-pandemic levels in 2019.”

In addition, the bank’s strategists also added that professional speculators are currently expressing a greater appetite for Chinese stocks. The economic team also explained:

“Hedge fund investors have significantly taken back risk in Chinese stocks, mainly in offshore stocks through GS Prime Brokerage.”

According to Goldman’s economics team, the net Chinese exposure of these investors relative to their total global equity exposure is skyrocketing. In fact, the banking firm’s strategists say that net Chinese exposure as a percentage of total equities is at a record high.

Bank-branded credit card program discontinued

In other Goldman news, the New York-based banking giant recently pulled out of its quest to provide banking services to American consumers. Last week, Goldman announced it was abandoning plans to develop a bank-branded credit card for its customers. The bank had intended to launch the initiative on the same platform used by the 2019 Apple Card partnership.

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