Goldman Strategists See 24% Jump in Chinese Stocks by Yearend

(Bloomberg) — Goldman Sachs Group Inc. strategists expect the selloff in Chinese stocks since late January to reverse as the nation’s economic reopening delivers windfall profits for businesses.

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Goldman Sachs sees potential for the MSCI China Index to reach 85 points by the end of 2023, an increase of about 24% from current levels, according to a note Monday 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 Chinese stocks trading in Hong Kong falling into a technical correction last week. While that’s spurred a debate on whether the rally has run its course, bulls are betting on a key political meeting due next month and upcoming earnings to bring fresh impetus.

“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 strategists wrote. “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 added.

Chinese stocks climbed Monday after three weekly declines. The Hang Seng China gauge advanced as much as 0.5%, while the onshore CSI 300 benchmark rose 1%.

The modest gains suggest cautious sentiment in the wake of negative development over the weekend, when a meeting between US Secretary of State Antony Blinken and China’s top diplomat exposed rifts between the two nations over thorny issues.

READ: US-China Meeting Only Worsens Tensions Over Balloon, Russia

Some market watchers expect the next leg of China’s reopening trade to be a slow grind as investors turn their attention to fundamentals.

“Investors would likely require concrete evidence to confirm that fundamentals are indeed improving as the cycle transitions into growth,” the Goldman strategists wrote. As such, January-February macro statistics, the Two Sessions, and quarterly earnings from Chinese firms will be important factors to watch, they added.

(Adds context and Monday’s market moves.)