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Why Chinese stocks remain attractive investments: GS




  • The CSI 300 index fell 5.5% over the past week, and the Hong Kong Hang Seng fell 5% over the same period, as investors increasingly worried about the tightening of the market. regulation of domestic enterprises, particularly in the field of education.
  • Goldman remains overweight Chinese stocks, in part because they see them benefit from a possible easing in fiscal policy.
  • Certain sectors are particularly “growing” for Goldman analysts: software, semiconductors, energy / utilities (green) and automotive.
  • See more stories on the Insider business page.

Chinese stocks suffered one of their worst routs in years last week as regulators stepped up efforts to curb activity on everything from tech companies to education companies, scaring investors and wiping out billions of dollars. stock market value.

Goldman Sachs this week cut its forecast for Chinese stocks in light of the crackdown which he described as “unprecedented in terms of the duration, intensity, scope and speed of new political announcements”.

A more uncertain regulatory environment has spiked volatility and made parts of one of the most valued equity markets in the world. “not investablein their words. But Goldman’s Asian equity analysts say there are still many good reasons for global investors to have blue-chip Chinese stocks in their portfolios.

After the initial shock from Chinese regulators targeting private tutoring companies and other education-related companies as well as technology companies, the government moved quickly to stem the tide of foreign capital outflows following the market turmoil. .

The government met with regulators and key representatives of global investment banks to convey three main messages: any policy change would be isolated from the education sector; they would be introduced gradually to avoid high market volatility; and the measures were not aimed at decoupling the Sino-US financial markets.

But the Chinese CSI 300 index still posted a drop of 5.5% for the week, while the Hong Kong Hang Seng fell 5% during the same period, the largest weekly drop since February. for both indices.

Some market fears have faded, but the investment ground will remain rocky until a “new normal” is reached, Goldman said. Analysts at the bank recently executed different regulatory risk scenarios against Chinese stocks, dividing them into private enterprises (POEs) and state-owned enterprises (SOEs).

Following its analysis, the bank said it had neutralized its opinion on the MSCI China index, where POEs account for around 80% of the total index value, but remains overweight Chinese A shares by compared to those of mainland-based companies that trade in the Shanghai market. The Stock Exchange and the Shenzhen Stock Exchange “given its favorable sensitivity to a possible easing of (fiscal) policy, lower POE / Tech weights and a robust potential for northward flows”.

Goldman further claimed that the “growing” sectors he identified through his analysis were software, semiconductor, energy / utilities (green) and automotive, as they were “less. exposed to potential regulatory shocks ”.

Here are six main reasons Goldman analysts remain bullish, especially regarding Chinese A-shares:

  1. Social sectors in the POE universe represent 35% of total listed market capitalization, and those that are at risk (regulatory) (i.e. experiencing relatively high price inflation over the past 5 years) do not represent only 25% of the market capitalization of the entire universe.
  2. Given the Chinese government’s support for the development of core technologies and the encouragement of innovation to support high-quality growth, Goldman analysts said they still believe the authorities will be pragmatic when they would strike a balance between social / ideological goals and capital markets in non-social sectors. sensitive industries over time.
  3. The underlying demand of the digital economy is unlikely to be structurally damaged by regulations if they are confined to selected areas.
  4. In GS’s view, current investor sentiment is comparable to the market liquidation of 2015 where China A saw a 43% drop from peak to trough and 31% of market cap was suspended at some point. . However, when concerns dissipated and confidence gradually recovered, inflows of foreign portfolios resumed and surpassed previous highs, about a year after the incident.
  5. From a long-term macroeconomic perspective, the new regulations could potentially lead to a more balanced economy, in terms of growth engines and resource allocation, foster fairer competition, and reduce systemic risk in low-income sectors. strong leverage, among other benefits.
  6. Major regulatory concerns have eclipsed political support in some areas aligned with national development goals, including green energy, electric vehicles, enterprise / B2B software, semiconductors and ‘new infrastructure’. “.




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