China stock catalysts seen lacking as economic woes run deep while Goldman bets on a 19 per cent rebound to end 3-year slump

Geopolitical tensions, China deflation and a possible US recession are seen as the greatest threats, while potential positives include bargain hunting after the prolonged sell-off and an end to the foreign-investor exodus, based on an informal Bloomberg survey of 23 mostly mainland-based respondents.

The benchmark CSI 300 Index is trading near a five-year low as concerns about the Chinese economy fail to dissipate. Monetary policy easing, cash injections and government buying of stocks have done little to fuel a rebound as investors eye a host of problems including an ageing population and worries that the property market no longer offers growth.

“Measures to boost stocks are aimed at curing the symptoms, not the disease,” said Yu Yingbo, investment director at Shenzhen Qianhai United Fortune Fund Management Co. While opportunities outweigh risks at current market levels, “we hope that authorities may find the resolve to tackle underlying issues in the economy,” he added.

One potential tailwind cited by most of the respondents is a likely end to foreign avoidance of Chinese equities. After 2023 witnessed the smallest inflow since the stock connect programme with Hong Kong started in 2016, lower global interest rates and improving risk-reward are seen luring foreign investors back to onshore-listed shares.

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“I don’t think there’s any offshore money to be sold any more, nearly everything has been sold,” Hayden Briscoe, Asia-Pacific head of multi-asset portfolio management at UBS Asset Management, said on the sidelines of the bank’s Greater China Conference in Shanghai. “China looks extremely cheap relative to the rest of Asia.”

The CSI 300 Index may end the first quarter at 3,500 points, according to the median of 16 estimates in the informal poll, implying a gain of 6.3 per cent from Tuesday’s close. The survey target for end-2024 indicates a 21 per cent advance, which would be the first gain since a 27 per cent surge in 2020.

The index, which tracks 300 of the biggest stocks listed in Shanghai and Shenzhen, may deliver a 19 per cent price return in 2024, predicated on about 10 per cent earnings growth realisation and effective policy delivery, strategists at Goldman Sachs said in a report on January 9. They recommended an overweight rating.

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In Hong Kong, the Hang Seng Index is projected to rise 10 per cent as of end-March and 32 per cent for the full year, which would end its four-year losing streak. Survey respondents were evenly split on whether it’s a good idea to buy Hong Kong stocks right now.

Opinions were similarly divided on whether the worst is over for China’s property sector, one of the primary factors behind the nation’s continued economic malaise. Willer Chen, an analyst at Forsyth Barr Asia Ltd., sees no solution in the near term, saying the “macro recovery is still a big question mark here.”

“The number of defaults will definitely go down in 2024,” based purely on the fact that there are “not many major private developers left,” Chen said. Resolving the crisis will take a long time, he added.

Additional reporting by SCMP Reporter