Goldman Sachs recently joined a series of financial institutions in upgrading their rating on China stocks following recent stimulus measures introduced by the Chinese government. On October 5, Goldman Sachs issued a note elevating China stocks to an overweight rating, forecasting a potential increase of 15% to 20% in these equities. The Wall Street bank anticipates a further 15% rise for the MSCI China index and an additional 18% increase for the CSI 300 index. Since September 23, the CSI 300 has already experienced a 25.5% rise, and the Hang Seng index has climbed approximately 26%.
This recent rally comes after a prolonged period of decline for Chinese shares, which was largely due to growth concerns and persistent issues in the property debt sector. Similarly, Citi has adjusted its outlook for Chinese stocks, raising its year-end target for the Hang Seng index to 26,000, indicating a 24% increase, with further expectations of reaching 28,000 by the end of 2025, representing a 23% gain.
In late September, the People’s Bank of China introduced a series of measures intended to bolster economic growth. These measures included reducing the reserve requirement ratio by 50 basis points and proposing cuts to interest rates. The policy adjustments followed a high-level meeting where Chinese leaders emphasized the need to stabilize the property market and enhance both fiscal and monetary policies.
Wall Street’s sentiment towards Chinese equities has become increasingly positive, with Morgan Stanley predicting a 10% rally in Chinese stocks. BlackRock Investment Institute also raised its rating for China equities on September 30, expressing modest overweight expectations amid forecasts of fiscal stimulus. The institute noted that major fiscal stimulus might incentivize investor interest due to the significant discount of Chinese stocks relative to developed markets, although it maintained a cautious long-term outlook regarding China’s structural issues.
This shift in perspective comes after several years during which many analysts and financial institutions downgraded China equities, with only a few investment managers maintaining their positions on China. Despite the recent rallies, the timing of the upgrades raises questions. Vishnu Varathan, Managing Director at Mizuho Securities, remarked that the current surge in Chinese equity markets might be attributed to the potential for rapid gains rather than justified by deep-rooted confidence. Varathan cautioned that the specifics of the stimulus measures remain uncertain.
Goldman Sachs itself acknowledged uncertainties despite its optimistic forecast, indicating that insufficient information prevents declaring a structural bull market. It pointed out ongoing challenges such as issues within the property sector, high debt levels, and low domestic consumption in China. Nevertheless, Goldman argued there are valid reasons for further equity market gains, highlighting that the market remains oversold and undervalued.
