Goldman Sachs and Bank of America analysts anticipate another upswing in Chinese stocks following a recent period of consolidation. They believe that an upcoming key meeting in Beijing next month will introduce additional supportive measures to the market.
Timothy Moe, chief Asia-Pacific equity strategist at Goldman Sachs, describes the recent pullback as a “healthy correction” resulting from an overheated rally fueled by stimulus measures. He suggests that further upside potential may emerge as policymakers announce more support measures.
The MSCI China Index has experienced a 6.4% correction since its peak on May 20, while the Hang Seng Tech Index, tracking Chinese tech giants listed in Hong Kong, has declined by over 10%. However, the analysts view the upcoming third plenum in July, where President Xi Jinping will gather top Communist Party officials to discuss economic matters, as a potential catalyst for market growth.
Goldman Sachs expects the third plenum to address issues related to the property market, with policymakers possibly unveiling more comprehensive measures. Moe suggests that if the direction set by the plenum is forceful enough, it could provide comfort to the equity market.
Despite the positive outlook, risks persist, including ongoing geopolitical tensions with the US and economic indicators indicating lingering deflation pressure. However, analysts believe that consolidation at a higher level and improving sentiment are constructive signs for the market.
Overall, while the market may remain rangebound in the short term, analysts anticipate renewed investor confidence and a revisit of the China investment thesis in the coming weeks.