Chinese stocks rise after UBS and Goldman Sachs reports 📈

Futures quotes for Chinese indices are on a growth wave today. The reason for this, at least in part, can be seen in the comments of UBS and Goldman Sachs, which improved their forecasts for the Chinese stock market. At the same time, analysts lowered their forecasts for the indices of Taiwan and South Korea.

Goldman Sachs

• The bank noted a more favorable outlook for risk appetite in mainland China’s stock market. Investment bank says Chinese stocks could rise 40% as a result of market reforms
• GS expects China’s broader regulatory push to change its capital markets will lead to a significant rise in share prices. Condition even for approx. The 40% growth, according to GS, closes the gap with global leaders in terms of dividend payouts, share buybacks, ESG and institutional participation in the domestic market.
• China’s State Council recently developed clear nine-paragraph guidelines to support the domestic stock market. The new rules are expected to emphasize the quality of listed companies, regulatory oversight and investor protection.
• According to Goldman, despite the overall difficult situation, the implementation of changes could create the potential for an increase in the valuations of Chinese companies. In the base case scenario mentioned by GS, Chinese equities would increase by about 20% if only China reaches the global/regional average in terms of the factors mentioned.
• Mainland Chinese companies on average now pay out about 33% of their profits as dividends, while European companies have paid out 60% and Japanese companies 50% over the past decade. Corporate stock buybacks accounted for just 0.3% of total market capitalization in China, compared with 2.7% for the S&P 500 (10-year average).

YBS

• UBS upgraded its MSCI China index and Hong Kong equities, citing stronger and more resilient corporate performance and policy support. In August 2023, the bank downgraded China’s rating to “neutral”.
• The Swiss bank supported Goldman Sachs’ assessment. Earnings per share for companies in the MSCI China Index have fallen about 2% over the past 1.5 years. However, this is not a complete reflection of the situation, as some companies have little representation in the index but a large impact on earnings.
• According to UBS, China’s largest companies performed well and showed resilience despite deflation and a difficult period for the country’s economy.
• Analysts say the biggest risk now is geopolitics surrounding the US elections in November. Potential catalysts include the observed recovery in consumption and high levels of savings, which will eventually reach company coffers and, in part, markets. Tourism can also have a positive impact
• The Hang Seng and MSCI China indices are up 12-13% from their January 2024 lows. Today, HK.cash and CHN.cash futures are adding 1.5% and 1.1%, respectively.