Since late September, a series of incremental policies have been promoting the revaluation of Chinese assets. In this context, foreign investors have increasingly expressed bullish sentiments toward China. A month after upgrading Chinese stocks to "Overweight," Goldman Sachs released another report advocating for Chinese assets.
Goldman's Chief China Equity Strategist, Kinger Lau, and his team maintained their "Overweight" rating for Chinese A-shares and H-shares. They project a potential return of around 20% over the next 12 months. The team favors consumer-oriented industries over manufacturing. Additionally, Goldman noted that in the four weeks ending October 30, the A-share market saw a net inflow of $24.385 billion.
The report suggests that China’s macroeconomic growth could gain momentum in the fourth quarter, driven by loosened measures, benefiting revenue growth and profitability for companies listed on the A-share and H-share markets. The Chinese internet sector remains a key factor for profit upgrades. Recently, non-banking financial firms have seen strong ratings improvements amid recovering capital market activities and stock market performance.
The team also expects a 12% growth in earnings per share for A-share and H-share companies in 2024, partly due to a low base in the fourth quarter of 2023, with another 12% growth anticipated in 2025. While the forecast risks are balanced, downside risks exist in export-sensitive sectors, whereas upside risks might benefit consumer-related stocks due to policies focusing on demand-side stimulus.
In terms of investment strategy, the team has shifted its preference from offshore to onshore stocks, influenced by support from the People's Bank of China, increased domestic retail investor participation, and A-shares' underperformance compared to H-shares by 3% over the past three months.
Goldman prefers consumer-facing sectors for both A-shares and H-shares, including internet (consumer tech), services, and dining industries. They advocate a barbell strategy in investment themes.
Moreover, over 100 A-share companies have secured or applied for commercial bank loans totaling 110 billion RMB for stock buybacks, potentially sustaining the strong buyback trend in the A-share and H-share markets.
Global fund flow reports from Goldman indicate a total net inflow of $63.628 billion into equity markets in the four weeks ending October 30. Of this, U.S. stocks received a $37.228 billion net inflow, while A-shares attracted $24.385 billion. In contrast, Japanese and Indian stocks saw net outflows of $6.063 billion and $284 million, respectively.
More foreign institutions are echoing bullish sentiments toward China, highlighting recent policy measures that robustly boost social expectations and confidence. In the medium to long term, China's market and assets are expected to become more attractive to global investors.
MS's Chief Economist for Asia, Chen Aiyan, stated that recent Chinese policies positively impact economic development, such as stabilizing real estate prices and boosting market confidence. Meanwhile, some global institutions and investors are reassessing A-share investment opportunities and increasing allocations to Chinese assets.
Recent developments, such as HSBC China's approval for securities investment fund custody and Huatai-PineBridge's transition to a foreign-owned public fund, illustrate foreign investment expansion into Chinese assets. AllianceBernstein noted significant fund inflows into China-focused equity funds, suggesting a shift of global funds might already be underway.
Industry experts predict that future openness policies will boost attraction, and foreign institutions are expected to increasingly allocate resources to Chinese assets.
On a related note, Zhu Hexin, Deputy Governor of the People's Bank of China, announced plans for a mid-term reform plan to facilitate foreign direct investment and optimize foreign exchange management, aiming to create a favorable business environment for foreign enterprises in China.
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