UBS, Goldman Sachs, JPMorgan Are Upbeat on China’s Stock Markets

29/5 2024 11:00

UBS, Goldman Sachs and JPMorgan Chase & Co. and other foreign financial services institutions have recently expressed optimism about the Chinese mainland stock market, which has rebounded sharply since late April.

Overseas long-term funds have been buying Chinese stocks since the mainland stock markets began to rally in mid-to-late April, Wang Zonghao, head of UBS China’s equity strategy research, said yesterday.

The reasons for the recovery are that listed companies, especially large Internet companies, are posting higher-than-expected profits or are doing large buybacks, Wang said. Foreign investors are also becoming less anxious about potential systemic risks caused by the sluggish real estate market, and stock prices are becoming more correlated with corporate fundamentals.

Although foreign capital started returning to the Chinese market in April and May, the overall position of foreign capital is still low, Wang said. In terms of valuations, the MSCI China Index, which includes stocks of Chinese firms listed on the mainland and even offshore, is now trading at a price-to-earnings ratio of only 10.5 times.

“We expect earnings per share to grow by around 10 percent, and the valuation will improve significantly as the market sees better-than-expected EPS growth,” Wang said.

Chinese stocks have performed well since April, and investors may further increase their positions in China in the coming months, Liu Jinjin, equity strategist at Goldman Sachs China, said on May 24.

If the new regulations issued by the country’s cabinet, the State Council, on April 12 can improve the issuance and listing system and enhance supervision of issuance and underwriting, the overall valuation of mainland shares should rise 20 percent, with the most optimistic estimate at about 40 percent, Liu said.

The basic expectation for the MSCI China Index is 66 points, while that for the CSI 300 Index, which measures the performance of the top 300 stocks traded on the Shanghai and Shenzhen stock exchanges, is 3,900 points, Liu Mingdi, JP Morgan’s chief Asia and China equity strategist, said on May 23.

The cost performance of Chinese stocks has improved in the past year, as many listed companies reduce expenses while earnings surge. Performance should recover this year, and stable asset prices will help continuous recovery.

Currently, the MSCI China Index is 45, the Shanghai Composite Index climbed 1.45 percent to 3,111 and the Shenzhen Composite Index is closed up 5.2 percent at 1,734.14.