Goldman Sachs projects strong gains for Chinese stocks in 2024
Goldman Sachs is predicting significant gains for Chinese stocks in 2024, with the investment bank projecting the MSCI China and CSI 300 indexes to rise by 12% and 15% respectively. This bullish outlook is underpinned by an estimated earnings growth of about 10% and “moderate” valuation gains.
In their 2024 China equity outlook, Goldman Sachs has expressed a preference for A-shares over H-shares, citing A-shares’ lower sensitivity to geopolitical and liquidity factors.
Goldman Sachs is also optimistic about specific sectors within the Chinese market, upgrading the food and beverage sector to overweight from market weight and the technology hardware sector to overweight from underweight.
The investment bank is particularly bullish on sectors in China’s mass consumer market and technology, media, and telecom industries, which they see as likely winners in the ongoing rebalancing of the Chinese economy.
According to Kinger Lau, Goldman Sachs’ chief China equity strategist, the Chinese central government has signaled a more supportive policy posture, including monetary easing, fiscal policy stimulus, and deregulation, which is expected to drive growth in the Chinese economy.
Despite the ongoing challenges in the Chinese market, Goldman Sachs believes that Chinese equities may be set for the first index gains in four years in 2024, driven by strong earnings growth and valuation gains.
Goldman Sachs also sees opportunities in China’s rebalancing toward sectors such as artificial intelligence and “new” infrastructure that offers greater enhancements economically, socially, and environmentally. They are also positive on sectors that are important to China’s national development objectives, such as batteries, new energy vehicles, and renewable energy.
While expressing optimism about the Chinese market, Goldman Sachs is cautious about certain sectors, such as consumer services, insurance, and banking, due to their exposure to the Chinese property crisis.
Overall, Goldman Sachs remains bullish on the outlook for Chinese stocks in 2024, pointing to a right-skewed return distribution if concerns about policy and geopolitical factors subside.
“We think that the Chinese housing deleveraging process will take a few years to manifest and to play out,” said Kinger Lau. “So over the next few years, we think that the housing market will continue to be a drag on economic growth, which is why we need all these policy supports to stabilize growth.”
Goldman Sachs is also more sanguine on the onshore Chinese stock markets, retaining their overweight rating for onshore markets but lowering the H-share market to market weight from overweight. They believe that the strategic investment case looks more compelling for A-shares due to their lower sensitivity to geopolitical and liquidity factors.
Goldman Sachs’ bullish outlook for Chinese stocks is seen as a significant vote of confidence in the Chinese economy’s ability to navigate the challenges it currently faces and return to a path of sustained growth.