Goldman Sachs: Foreign investment is favored. Chinese stocks are the best for the 20%.
After the heavy losses last year, the Chinese and Hong Kong stock markets have a strong revenge, and the increase is even more “bovine". Liu Jinjin, chief strategist of Goldman Sachs China, which took the lead in granting an overweight to Chinese stocks last year, said in an exclusive interview with the newspaper that overseas funds have a positive view on China, and once trade negotiations reach an agreement, the mainland has relaxed supervision over various industries. The market may rise up to 19%.
The new round of Sino-US trade talks is overtime, and the latest results are announced in the day. Liu Jinjin said that in response to the easing of the trade situation, the bank has increased the probability of the trade war “cease period" from 50% to 60%, and expects both sides to Continue negotiations for 3 months. He believes that China and the United States can finally reach an agreement covering three major areas, including (1) the mainland to increase imports, (2) the central government’s commitment to further open financial services, and (3) the mainland to lower tariffs on some products.
Foreign investment in Chinese stocks is “very positive"
Liu Jinjin added that the biggest dispute between China and the United States does not stop at the trade level, but around high-level fields such as science and technology, 5G, industry subsidies, and intellectual property rights. These issues are “even more difficult to negotiate, even if it is negotiated for another three months." “The plan", it is expected that the agreement can only ease the conflict, and it is difficult for the two countries to return to their former intimacy. However, in the investment market, Liu Jinjin pointed out that if the two countries can reach a trade agreement, according to the bank’s model, there is still a modest increase in the market outlook.
Stimulated by the overtime news, US stocks surged on Friday. Hong Kong blue-chip stocks (ADR) slightly retreated, which is equivalent to the Hang Seng Index opening 23 points lower today, at 28,793 points, but I believe that with the favorable news of China and the United States, It is expected that the short-term will rise above the 29,000 points, and the risk is that the funds are good news.
In addition to the trade war, Liu Jinjin believes that the economic fundamentals will also dominate the market outlook. He also pointed out that although the central government has continuously introduced stimulative measures to ease liquidity in recent months, the market has long expected this. It is believed that the current valuation has reflected this factor. Whether Chinese stocks can continue to be strong depends on whether the central government has further relaxed industry policies to improve the operating environment of private enterprises.
Liu Jinjin believes that the market may not be able to see the mainland comprehensively relax the industry supervision in the short term, but if the central government takes the shot, the forecasted P/E ratio of the MSCI China Index can be re-evaluated to 14 times, and the current potential increase is nearly 19%.
The storage bureau tends to drive funds into China
Behind the continuous rise of China and Hong Kong stock markets this year, the massive return of funds is one of the major factors. Liu Jinjin described that foreign investors are now “very positive" about the Chinese market. He has been attending meetings in recent months. “In the past seven weeks, I have already flown twice in Europe and three times in the mainland. I will go to the United States in March. "
He explained that many institutional investors have a low position in the US market. From a fundamental point of view, the valuation of US stocks is relatively high, and the bull market is gradually entering the post-cyclical phase, so that funds seek a new way out and turn to focus on benefiting the Federal Reserve. The emerging markets of the pigeons have driven the funds to flow into China this year.
On the other hand, the increase in the number of shares in the A-shares has also become a catalyst. Liu Jinjin pointed out that the current weight of A-shares in the MSCI Emerging Markets Index is less than 1%. However, once the A-shares are finally overweight, their weight will rise to 3%. If then, the emerging market funds will not be allocated an A-share. The tracking error will be very large, so many funds have begun to pay attention to the Chinese market.