China stocks have already rallied close to 60% since late October but a Goldman Sachs’ strategist is convinced they still have more room to the upside.
Kinger Lau attributes recent surge in the MSCI China Index to “reopening” that followed the country’s strict COVID policies – and a continued recovery, he said in a research note today, could unlock another 24% upside by the end of this year.
We believe the principal theme in the stock market will gradually shift from reopening to recovery, with the driver of the potential gains likely rotating from multiple expansion to earnings growth/delivery.
Data including consumption levels and purchasing manufacturer’s index signals economic strength that will translate to a further gain in China stocks, he added.
Lau now expects the largest Asian economy to grow by 5.5% this year, including a whopping 9.0% in the second quarter and 7.0% in the third quarter. His note reads:
The growth impulse should be heavily tilted towards the consumer economy, where services sector is still operating significantly below the 2019 pre-pandemic levels.
It is noteworthy that Chinese households still have over $437 billion in excess savings. Lau is bullish on China also because the hedge fund investors are now significantly regaining interest in them as well.
Versus the recent peak, though, China stocks are down about 10% at writing.
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