Chinese Stock Markets Slated to Post 24% Rise This Year, Goldman Sachs Says

Analysts at Goldman Sachs say that Chinese stocks could rise as much as 24 percent by the end of this year. The prediction comes amid a period of correction in the Chinese stocks. The analysts believe that Chinese business will knock up profits through the course of the year as the Covid reopening comes into full effect.

According to them, the MSCI China Index may hit 85 points by the end of 2023, which would mark a 24 percent from Friday's close.

Hong Kong stock exchange
Hong Kong stock exchange Wikimedia Commons

Robust Consumer Economy

"The principal theme in the stock market will gradually shift from reopening to recovery, with the driver of the potential gains likely rotating from multiple expansion to earnings growth/delivery ... The growth impulse should be heavily tilted towards the consumer economy, where services sector is still operating significantly below the 2019 pre-pandemic levels," they analysts wrote in a note, Bloomberg reported.

In early January, China's benchmark CSI 300 Index hit the highest level in almost five months after foreign investors started showing renewed interest in the markets. For comparison, the benchmark Chinese index had lost almost 40 percent in the ten months up to October last year.

The first two weeks of the year 2023 saw a market rally in China, which was part fueled by the foreign players, who had been off the market in the last year owning to China's lingering Covid-19 threats and serious concerns about the direction of politics.

Renewed Trust from Foreign Investors

With foreign fund managers reversing bearish positions, the Chinese stocks have become more attractive, and the share of foreign investment in the overall Chinese capital markets is inching up. According to Nikkei Asia estimates, the foreign investors bought a net 64 billion yuan ($9.5 billion) in the first nine trading days of 2023. This is way more than the 90 billion yuan investment in the whole of 2022. Incidentally, the year 2022 saw the lowest foreign capital flows into China since 2017.

A floor trader monitors share prices during afternoon trading at the Hong Kong Stock Exchange in Hong Kong, China. Reuters

However, Chinese stocks trading in Hong Kong had fallen into a technical correction last week, as investors feared that the Covid-reopening rally had lost momentum.

Earnings in Focus

One main reason behind the fading of the rally was the petering out of the positive sentiments generated by the China reopening. Another strong trigger for the latest correction was the diplomatic tensions with the US following the shooting down of the alleged China spy balloon by the US. Chinese stocks in Hong Kong lost 2 percent immediately after the 'spy balloon' crisis escalated.

Shanghai Stock Exchange
Shanghai Stock Exchange Wikimedia Commons

Now, Goldman Sachs believes that the setback might be short-lived. They cite stock bulls regaining optimism about the resolution of political conflict. There is also the possibility that Chinese companies will report robust results in the coming months.