Goldman raises forecasts for China stocks after Beijing’s stimulus pledge

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Goldman Sachs has upgraded its expectations for Chinese stocks, telling investors that shares could go a further 20 per cent higher after a historic rally following Beijing’s pledge to do more to stimulate the economy.

Strategists at the US investment bank said the measures announced so far by Chinese authorities “constitute a more substantial policy stimulus that contrasts with the sporadic and modest easing measures over the past few years”.

Foreign investor positioning remained “light” and valuations remained cheap relative to history, they wrote in a note.

It comes as investors are preparing for the resumption of China’s equities rally tomorrow when markets reopen after a week-long holiday, and as expectations rise for the world’s second-largest economy to unveil additional stimulus measures.

Chinese authorities are set on Tuesday to outline a series of fiscal measures to complement the monetary policy stimulus blitz they launched at the end of September, which sent Chinese equities on a record rally.

Top officials from the National Development and Reform Commission, the state planning body, will present “a comprehensive set of incremental policies, to solidly promote upward economic growth and structural optimisation and continue to improve the development trend”, according to an official agenda.

Global investors have been buoyed by the stimulus blitz unleashed by Beijing over the past two weeks and financial institutions including BlackRock and Citibank have also become more bullish on their expectations for Chinese asset performance.

Beijing’s stimulus measures follow warnings from economists about the dangers of a deflationary spiral in the economy, with a long property slump depressing consumer spending. Analysts had become more sceptical that China would hit the government’s 5 per cent growth target for 2024.

The initial news of the stimulus last month sent Chinese stocks into a frenzy, adding $3tn of market capitalisation to the CSI 300 of mainland-listed blue-chip companies as investors, both foreign and domestic, piled back into equity markets. 

The CSI 300, which has soared from below 3,200 points in mid-September to more than 4,000, could hit 4,600 within 12 months, Goldman said.

Its economists said the measures announced so far could raise GDP by 0.4 percentage points, adding that every further Rmb 1tn that went into the real economy should also do the same.

The Goldman strategists cautioned that “the market requires confirmation” of the sizeable fiscal stimulus that many expect Beijing to unleash, adding “beyond this, investors will focus on evidence that funds are being deployed and having an economic impact”.

Mainland Chinese markets have been closed since last Tuesday. However, investors pointed to the 11 per cent rise over the past five days of Hong Kong’s Hang Seng China Enterprises index, which comprises mainland companies listed in the territory, as a sign that Chinese markets would open higher on Tuesday.

Hong Kong’s Hang Seng index is up 37 per cent this year, more than the S&P 500.

Tao Wang, China economist at UBS, said the market appeared to be expecting “a significant fiscal stimulus”. While some market participants are talking about a potential package of more than Rmb10tn, UBS expects Rmb1.5tn-2tn in the near term and a further Rmb2tn-3tn of fiscal expansion next year. 

Additional reporting by Edward White in Shanghai and Ryan McMorrow in Beijing