Goldman Sachs Group Inc. anticipates that Chinese stocks will settle within a lower trading range until Beijing implements more robust policy measures to counteract the contagion risk.
The global financial institution has revised its outlook for the MSCI China Index, lowering its full-year earnings-per-share growth projection to 11% from the earlier 14%. Also, the 12-month index target has been adjusted downward to 67 from the previous 70, as revealed in a recent report authored by strategists including Kinger Lau.
Despite the reduced projection, this new target still implies a potential 13% gain from the index’s Friday closing value.
The strategists at Goldman Sachs pointed out, “The initial market optimism that followed decisions made by the Communist Party’s top decision-making body in July was short-lived. The real estate market’s ongoing challenges and the subsequent threat it poses to both the real and financial sectors are widely acknowledged factors contributing to this market correction.”
This marks the second instance within a span of three months that Goldman Sachs has revised its stance on Chinese equities and also the change in sentiment is reflective of the pervasive pessimism that has taken hold in the nation’s stock market.
Despite these challenges, Chinese shares continue to benefit from attractive valuations and limited investor exposure. However, the potential for growth remains restricted due to persistent liquidity and growth headwinds as outlined by Goldman Sachs strategists.
On Monday, the MSCI China Index witnessed a decline of more than 1%, bringing its total retreat from the peak observed in January to 23%.
In a similar move earlier in June, Goldman Sachs had previously revised its MSCI China target from 80 to 70, citing concerns related to earnings and currency dynamics.
In their most recent report, the strategists recommended focusing on sectors and stocks that offer enhanced earnings visibility and a proven track record of delivering profits. Additionally, they suggested considering investments that stand to benefit from the depreciation of the yuan.