According to Goldman Sachs strategists, an economic transition from “reopening to recovery” will drive Chinese equities higher by up to 24% by the end of this year.
According to a Monday statement, the firm forecasts a possible 24% increase in the MSCI China index as the government transitions from the openness that followed its tough zero-Covid regulations to a development period.
“We anticipate the primary narrative in the stock market will progressively move from reopening to recovery, with the driver of potential gains likely moving from multiple expansion to earnings growth/delivery,” Goldman Sachs analysts wrote in a note, including chief China equities strategist Kinger Lau.
During the Lunar New Year earlier this year, Chinese equities entered bull market territory, with the MSCI China index topping at the end of January, up about 60% from October lows.
The index has fallen approximately 8% since its top on Jan. 27 as of Friday’s close. It puts it near to market correction area, which is commonly described as a drop of more than 10% from the most recent peak.
MSCI China tracks over 700 Chinese equities listed throughout the world, including Tencent, BYD, and the Industrial and Commercial Bank of China. Goldman Sachs lowered its profit forecast for the index to zero growth in July.
They said that the developments will be “reminiscent of a transition from the Hope to Growth phase in a typical equities cycle,” and that Covid is now “arguably in the rearview mirror” in China.
Its most recent purchasing manager’s index, as well as consumption levels, indicate “strong evidence of activity stabilization, although from a low base,” according to the analysts.
Goldman Sachs forecasts China’s GDP would rise by 5.5% in 2023, fueled by 9% and 7% growth in the second and third quarters, respectively.