Predicted market bargains attract attention of financial experts
In a recent development, Goldman Sachs has advised its clients to invest in Chinese stocks, citing significant upside potential for the market. Despite the recent surge in Chinese stocks, only about 22% of household financial assets in China are currently invested in stocks, leaving over 10 trillion yuan of potential inflows to fuel further gains, particularly in smaller companies.
The MSCI China Index 12-month target has been raised from 85 to 90, implying an 11% upside. This increase is partly due to expectations of a stable, favourable US-China trade arrangement.
Goldman Sachs' optimism is grounded in strong retail participation and a large amount of idle capital yet to be invested. The investment bank sees a potential 11% upside in Chinese stocks on expectations of an improved US-China trade deal, which could act as a market-clearing event, removing long-standing overhangs on investor sentiment.
Technical and institutional indicators show broadening market momentum and strong buying activity, with hedge funds net buying Chinese equities at the fastest pace in weeks. This suggests a positive outlook for the Chinese stock market.
However, Goldman Sachs also acknowledges ongoing risks, including regulatory uncertainties and geopolitical tensions. Yet, they believe that supportive policy measures could emerge towards the end of the year to bolster growth.
While the focus is on small and mid-caps for upside potential, large tech names like Alibaba and Tencent typically represent core market exposure, benefiting from overall market tailwinds and improving liquidity conditions.
For those who find individual Chinese stocks too risky due to regulatory crackdowns, the iShares MSCI China A UCITS ETF (WKN: A12DPT) could be a safer investment option. This exchange-traded fund invests in Chinese stocks, providing diversified exposure to the market.
In summary, Goldman Sachs maintains a constructive stance on Chinese equities, including leading stocks, amid a favourable macro environment, potential easing US-China tensions, and continued strong domestic investor interest. With an estimated near-term upside of around 11% from current levels, the rally for Chinese stocks, according to Goldman Sachs analysts, has just begun.
Despite Goldman Sachs' optimistic outlook on Chinese equities, associated risks such as regulatory uncertainties and geopolitical tensions continue to persist. However, if supportive policy measures emerge towards the end of the year as anticipated by Goldman Sachs, this could bolster growth and further fuel the investing trend in real-estate, stock-market, and small to mid-sized companies in China. For those seeking a safer investment option within the Chinese stock market, the iShares MSCI China A UCITS ETF provides diversified exposure to various sectors, including the major tech companies like Alibaba and Tencent.
