Goldman downgrades HK-traded China stocks, raises India
GOLDMAN Sachs Group has lowered its recommendation on Chinese stocks listed in Hong Kong due to modest earnings growth, while maintaining a bullish view of shares traded on the mainland.
China’s industry is going through a rebalancing towards “areas of higher productivity and greater self-sufficiency”, which include technology themes such as artificial intelligence (AI), strategists including Timothy Moe wrote in a note. These opportunities “are more widely present in the onshore market”, they added.
The Wall Street bank expects 10 per cent earnings growth in 2024 for members of the MSCI China Index and 11 per cent for those on the CSI 300, similar to what they project for this year.
That’s because while the drag from the housing crisis may moderate, a higher base from the post-Covid demand recovery will present a hurdle for bigger profit gains.
The firm has downgraded its target for Chinese benchmarks several times in 2023 amid the market’s lacklustre performance. In the latest report, Goldman remained overweight on Chinese onshore shares.
Sectors related to themes including AI, new infrastructure, and state-owned enterprises’ reforms might have a good run, they said.
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Morgan Stanley also highlighted its preference for A-shares in a note dated Nov 12 (Sunday), while staying equal-weight on China overall.
“The hurdles ahead to a sustainable China equity market recovery are still high, with mounting macro pressure on earnings coupled with currency weakness,” analysts including Laura Wang wrote in the note.
2024 might be “a defining year” for China to start systematically tackling long-term structural challenges, which have deterred further long-term allocation at the current juncture, the analysts wrote.
They expect increases of between 5 per cent and 7 per cent for the Hang Seng China Enterprises Index and CSI 300 Index, respectively, from Nov 8 levels by the end of 2024.
Meanwhile, Goldman strategists upgraded India to overweight. The country is expected to see “the best structural growth prospects in the region” with mid-teens earnings growth over the next two years, they wrote.
The market’s strategic appeal, particularly given its largely domestically driven growth, offers investors a wide array of alpha-generating themes, including make-in-India, large-cap compounders and mid-cap multibaggers, the strategists said.
The Morgan Stanley team also said India remains a top pick heading into 2024. BLOOMBERG
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