(Bloomberg) – Strategists at Goldman Sachs Group Inc. expect the sell-off in Chinese stocks since late January to reverse as the country’s economic reopening brings unexpected gains for companies.
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Goldman Sachs sees potential for the MSCI China Index to reach 85 points by the end of 2023, up about 24% from current levels, according to a note from strategists including Kinger Lau on Monday.
China’s reopening rally has lost momentum amid escalating geopolitical tensions and an uncertain outlook for the economy, with one indicator that Chinese equities trading in Hong Kong slipped into a technical correction last week. While this has sparked debate as to whether the rally has run its course, the bulls are banking on a key policy meeting next month and upcoming gains to reignite.
“The main theme in equity markets will gradually shift from reopening to recovery, with the potential gains driver likely to pivot from multiple expansion to earnings growth/delivery,” the strategists wrote. “The growth stimulus should be heavily focused on the consumer economy, where the service sector is still well below pre-pandemic 2019 levels,” they added.
Chinese stocks rose on Monday after three weekly declines. The Hang Seng China gauge rose as much as 0.5%, while the onshore benchmark CSI 300 rose 1%.
The modest gains hint at cautious sentiment amid the downturn over the weekend, when a meeting between US Secretary of State Antony Blinken and China’s top diplomats exposed the two nations’ disagreements over hot-button issues.
READ: US-China meeting only worsens tensions over Ballon, Russia
Some market observers believe the next phase of China’s trade reopening will be slow as investors turn their attention to fundamentals.
“Investors would likely need concrete evidence to confirm that fundamentals do indeed improve as the cycle transitions into growth,” Goldman strategists wrote. Therefore, the January-February macro statistics, the two sessions and the quarterly earnings of Chinese companies are important factors to watch, they added.
(Adds Monday’s context and market moves.)
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