Beijing, September 9 (ZXS) -- International investment bank Goldman Sachs disclosed on the 14th that the research department of its equity strategy team recently published a research report predicting that driven by five factors, China's stock market is expected to have upward trading opportunities before the end of this year, gradually trending towards the previously predicted MSCI (MSCI) China index point, which means that the potential return will reach 14%.
Specifically, the first is to accelerate the easing policy. Goldman Sachs believes that unlike the previous relatively partial easing policy, the Chinese government has recently introduced a series of closely coordinated combination policies. While the probability of a "blockbuster" launch is unlikely, the announced policy mix should help stabilize growth and reduce systemic risks.
Second, cyclical improvement. Goldman Sachs noted that China's August data has shown signs of stabilizing growth. Changes in the inventory cycle, the lagged effect of policy stimulus, and the bottoming out of the global manufacturing cycle are a number of key factors for Goldman Sachs economists' growth forecasts for the second half of 2023 that are higher than market expectations.
Third, the market technology is good. Goldman Sachs said that during the three rounds of property-led easing in 2008, 2014 and 2020, the (equity) market recovered 10% to 20%. In addition, seasonality also appears to favor stock market performance, with an average return of 4% in the fourth quarter of the past decade, compared to an average return of just minus 1% in the first to third quarters.
The fourth is low valuation. Goldman Sachs said the MSCI China Index and CSI 300 Index currently have dynamic P/E ratios of 10 times and 11 times, respectively, 18% and 11% lower than the five-year average, and 40% and 30% lower than developed markets and emerging markets excluding China, respectively, both at historical lows.
Fifth, low positions. Goldman Sachs pointed out that the holdings of overseas hedge funds and public funds are at a low level, and the recent outflow of northbound funds has reached the largest level since the establishment of the Land-Hong Kong Connect in 2014.
Taken together, Goldman Sachs' above-mentioned research report maintains overweight on Chinese equities due to a positive risk-reward ratio, but breaking through volatility and re-attracting overseas long-term funding may require effective policy measures to address structural issues facing growth and restore confidence, a new steady state in the real estate market, and a more predictable geopolitical environment. (End)