Goldman Sachs (NYSE:GS) has projected a bullish outlook for China's stock market in 2024, with anticipated gains of 12% for the MSCI China index and 15% for the CSI 300 index. This positive forecast is underpinned by an expected earnings growth of around 10%, coupled with moderate valuation improvements. The investment bank's confidence is particularly strong in A-shares, which are deemed less vulnerable to geopolitical tensions and liquidity swings.
Strategists at Goldman Sachs, shared insights on CNBC’s “Squawk Box Asia” today regarding China's potential policy easing actions. These measures could include monetary easing, fiscal stimulus, property market relaxation, and industry regulation relaxation. These steps are seen as a counterbalance to the economic slowdown identified earlier in the year.
Investors are keenly awaiting further policy directions from the upcoming third meeting of the Chinese Communist Party's Central Committee. Despite a three-year streak of losses for both the MSCI China and CSI 300 indexes, Goldman Sachs anticipates a turnaround, bolstered by positive earnings expectations for the next two years.
The firm has identified strategic growth opportunities in sectors such as artificial intelligence and new infrastructure, which are poised to contribute to China's economic, social, and environmental development. Industries crucial to national progress like battery technology and renewable energy sources also hold promise.
Amid global restocking trends and specific product life cycles, technology hardware is expected to bounce back from significant earnings declines experienced over the past two years. However, Goldman Sachs has scaled back its enthusiasm for consumer services and insurance sectors, adjusting them from overweight to market weight. This caution reflects emerging risks within Chinese assets, especially banks that continue to grapple with net interest margin pressures.
In line with these projections, Goldman Sachs maintains an overweight rating for onshore Chinese stock markets. The H-share market has been adjusted to market weight due to a more compelling investment case for China A-shares characterized by lower geopolitical sensitivity and greater alignment with national development objectives. The Third Plenum of the Chinese Communist Party is earmarked as a pivotal event that could provide essential policy signals influencing market trajectories.
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