Goldman sees snap back in Chinese stocks as growth steadies

[HONG KONG] Goldman Sachs Group Inc is sticking with its bullish view on Chinese stocks in Hong Kong, saying valuations are inexpensive and improving economic data will spur a rebound.

"The snapback in China could be fairly meaningful," Timothy Moe, chief Asia Pacific equity strategist at Goldman, said in an interview Wednesday.

"The risk versus reward in terms of what's priced in the market gives us a sense that if we see a stabilization in macro data, say from here to the end of the year for example, then we could see a decent recovery."

The MSCI China Index has slumped more than 30 per cent from its April peak as a mainland equity rout rippled across the Hong Kong border and data pointed to a deepening economic slowdown. The equity measure trades at 8.6 times profits, according to data compiled by Bloomberg. At market troughs in 2008 and 2011, it bottomed out at 7 times and 7.8 times, respectively.

"These are quite low valuation levels and the ones that are not too far off where the market has found a floor during previous times of stress," Mr Moe said. "There's going to be further monetary policy easing and decent fiscal stimulus, and continuing reform."

Even after cutting interest rates for the fifth time since November and telling banks they can hoard less cash, Chinese policy makers remain under pressure to do more to support the world's second-largest economy. A manufacturing gauge fell to the lowest reading in three years in August, while profits at the nation's industrial companies slipped 2.9 per cent in July.

The MSCI China gauge dropped 1.2 per cent on Wednesday as the Shanghai Composite Index retreated 0.2 per cent. Mainland markets are closed Thursday and Friday for World War II commemorations, while Hong Kong's market is shut on Thursday.

BLOOMBERG