(Bloomberg) — Strategists at Goldman Sachs Group Inc. expect the sell-off in Chinese stocks since late January to reverse as the nation’s economic reopening brings windfall gains for companies.
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The US investment bank sees potential for the MSCI China Index to hit 85 points by the end of 2023, up about 24% from Friday’s close, according to a Monday note from strategists including Kinger Lau. .
China’s reopening rally has lost momentum amid escalating geopolitical tensions and an uncertain outlook for the economy, with a gauge of Hong Kong-listed Chinese stocks slipping into a technical correction last week. While that sparked a debate about whether the rally has run its course, bulls are betting on a key policy meeting next month and upcoming earnings to build fresh momentum.
“The main theme in the stock market will gradually shift from reopening to recovery, with the driver of potential earnings likely to shift from multiplex expansion to earnings growth/delivery,” the strategists wrote. “Growth momentum should be heavily skewed towards the consumer economy, where the service sector is still operating significantly below pre-pandemic 2019 levels,” they added.
Chinese stocks rose on Monday after three weekly falls. The Hang Seng China gauge advanced more than 0.9%, while the benchmark CSI 300 onshore index rose 1.2%. Construction-related stocks were among the biggest lifts for the terrestrial gauge, along with telecom stocks.
The modest gains suggest cautious sentiment in the wake of negative developments over the weekend, when a meeting between US Secretary of State Antony Blinken and China’s top diplomat exposed divisions between the two nations over thorny issues.
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Some market watchers expect the next stage of China’s reopening of trade to be slow as investors turn their attention to fundamentals.
“Investors will likely need concrete evidence to confirm that fundamentals are improving as the cycle turns to growth,” the Goldman strategists wrote. As such, the macro statistics for January-February, the two sessions and the quarterly earnings of Chinese companies will be important factors to consider, they added.
(Updates with the latest market movements and top gainers in the fifth paragraph.)
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