Goldman Sachs raises 12-month target for MSCI China Index to 85 points and CSI 300 Index to 4,700 points.

Goldman Sachs raises 12-month target for MSCI China Index to 85 points and CSI 300 Index to 4,700 points.

Goldman Sachs, a leading global investment bank, has recently raised its 12-month targets for the MSCI China Index and the CSI 300 Index [1]. The bank's research team, headed by Kinger Lau, the chief China equity strategist, expects the Chinese stock market to experience further gains, driven by a combination of supportive government policies and improving earnings growth.

According to Goldman Sachs, recent Chinese policy announcements indicate that the government is committed to bolstering the stock market. These measures, which span monetary and fiscal policy and property and equity markets, have positively surprised investors and shifted the policy narrative [1]. The bank estimates that every RMB 1 trillion of fiscal stimulus directed towards the real economy could lift China's real GDP growth by 40 basis points, translating to a 2 percentage point increase in earnings growth for stocks in the MSCI China and CSI300 indices [1].

Furthermore, Goldman Sachs anticipates a moderate pickup in consumption demand, which could contribute to higher earnings for companies in these indices [1]. Consequently, the bank has revised its price-to-earnings targets, forecasting that MSCI China companies could trade at 12.0x earnings and CSI300 stocks could reach 14.2x earnings (up from 10.3x and 12.8x respectively) [1]. This new outlook pushes Goldman Sachs' 12-month index forecast for the MSCI China to 84 and for the CSI300 to 4,600 points [1].

Despite some investors' hesitance after the previous whipsaw in stock prices, Goldman Sachs believes that this cycle could be more enduring. The bank cites historical precedents, where rallies with policy support and earnings growth have had more legs [1]. With the government's commitment to impacting the market and the improving earnings outlook, Goldman Sachs remains optimistic about the prospects for Chinese equities.

References:
[1] Goldman Sachs. (2022, October 14). Why China's Stock Market May Be Poised for Further Gains. Retrieved from https://www.goldmansachs.com/insights/articles/why-chinas-stock-market-may-be-poised-for-further-gains