Goldman Sachs is the latest in a series of calls for an upgrade in Chinese stocks following the Asian giant’s latest wave of stimulus measures. The Wall Street bank upgraded its rating on Chinese stocks to overweight in an Oct. 5 report, adding that the market was poised to soar further. Goldman Sachs predicts that China’s stock market may even rise by a further 15% to 20% given the strong rebound that has occurred. It is estimated that the MSCI China Index may rise another 15%, and the CSI 300 Index may rise another 18%. Since September 23, the CSI 300 Index has risen by 25.5%, and the Hang Seng Index has also risen sharply by about 26%. China’s stock market has been depressed over the past few years, weighed down by growth concerns and a long-running real estate debt crisis. In a report on Monday, Citi also raised its target price on Chinese stocks. It raised its year-end target for the Hang Seng Index to 26,000 points, implying a rise of 24%, and to 28,000 points, a gain of 23%, by the end of 2025. In late September, the People’s Bank of China announced a series of measures to support economic growth, including cutting the reserve ratio (RRR) for cash deposits held by banks by 50 basis points. It also announced plans to cut interest rates. It also followed a high-level meeting in which top leaders called for curbing the decline in the housing market and strengthening fiscal and monetary policies. Since then, Wall Street has become bullish on the stocks again, with Morgan Stanley predicting Chinese stocks will rise 10% or more. BlackRock Investment Institute also upgraded its rating on Chinese stocks in a Sept. 30 report on expectations of fiscal stimulus. It now has a “moderately overweight” view on China. “Given China’s deep discount to developed market equities, significant fiscal stimulus may be on the horizon and prompt investors to step in,” the report stated. “But we remain prepared to pivot. Given the structural challenges facing China, we remain long-term Caution.” The shift comes after many Wall Street banks and other analysts downgraded Chinese stocks over the past few years, with only a handful of fund managers maintaining a stance of conviction on China. But after shares have already rebounded, are calls to upgrade them again come too late? “The fact that China’s stock market is surging can at least be attributed to the room to catch up and be happy about that,” said Vishnu Varathan, managing director at Mizuho Securities. “That said, in Opportunism in the context of ‘low-hanging fruit’, rather than self-sustaining confidence, may have exaggerated the underlying optimism in the market,” he warned, adding that details on stimulus measures “remain scant.” Doubts may still surface given questions about whether and how the stimulus will be adequately funded, and whether “fundamentally self-sustaining” consumer confidence is likely to return rather than just a “brief” reflex. In fact, Goldman Sachs itself has cited uncertainty, although it believes further gains lie ahead. The report noted that “there is currently insufficient information to conclude that a structural bull market has begun,” and pointed to challenges facing China, such as those in the real estate industry, debt levels and sluggish domestic consumption. “However, there are strong arguments for further gains,” Goldman Sachs said, adding that the market was oversold and undervalued.
