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Goldman Sachs Analysts Foresee 24% Surge in China Stocks as Country Consolidates on Growth Phase

UTC by Tolu Ajiboye · 3 min read
Goldman Sachs Analysts Foresee 24% Surge in China Stocks as Country Consolidates on Growth Phase
Photo: Depositphotos

Goldman Sachs reckons that stocks in China would surge substantially at the end of the year on an improving economy. 

Goldman Sachs (NYSE: GS) analysts believe that stocks in China could surge as high as 24% by the end of the year. According to the banking giant’s strategists, this 24% upside could come as the country stabilizes its stringent zero-Covid policy phase.

Commenting on the potential growth of the MSCI China index since the country’s reopening, Goldman chief China equity strategist Kinger Lau explained:

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

As the country’s growth phase continues, Chinese stocks have been on an upswing since Lunar New Year earlier this year. For instance, the MSCI China index was up approximately 60% at the end of January from its October lows. However, as of Friday’s close, the index was down 8% from its January-ending peak and is now close to market correction territory. This phenomenon is when an index declines more than 10% from its recent peak.

Goldman Sachs Initially Contracted Outlook on China Economy, Stocks Last July

Goldman Sachs had cut its earnings outlook for the MSCI China index to zero growth last July but now projects stocks growth. In addition, the US banking giant expects the Chinese economy to swell by 5.5% in the full-year 2023. According to Goldman, this projected growth would receive massive help from second and third-quarter growths of 9% and 7%, respectively. Arguing that Covid in China is “arguably in the rearview mirror,” the bank’s strategists remain incredibly optimistic about economic growth. According to Goldman’s analysts, the subsequent growth spurt will be “reminiscent of a transition from the Hope to Growth phase.” Furthermore, although this transition will take place in a “typical equity cycle,” the strategists add a proviso. In their opinion, recent purchasing manufacturer’s index and consumption levels reveal “clear signs of activity normalization, albeit from a low base”.

Highlighting the more than 3 trillion yuan ($437 billion) in excess savings of Chinese households this year, Goldman’s strategists wrote:

“The growth impulse should be heavily tilted towards the consumer economy, where the services sector is still operating significantly below the 2019 pre-pandemic levels.”

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

“Hedge fund investors have substantially re-risked in Chinese stocks, predominantly in Offshore equities per GS Prime Brokerage.”

According to the Goldman economic team, the Chinese net exposure of these investors relative to their total global equity exposures is soaring. In fact, the banking corporation’s strategists argue that Chinese net exposure as a percentage of total equity is at a record high.

Discontinued Bank-Branded Credit Card Agenda

In other Goldman news, the New York-based banking powerhouse recently withdrew from its US consumer banking quest. Last week, Goldman announced that it was scrapping plans to develop a bank-branded credit card for customers. The bank intended to roll out the initiative on the same platform utilized by the 2019 Apple Card partnership.

Business News, Market News, News, Stocks
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