Goldman Sachs upgrades China stocks, sees as much as 18% upside from here

The recent stimulus-triggered rally in Chinese stocks could have legs, said Goldman Sachs, whose strategists upgraded the regional equities and projected high double-digit returns. The Wall Street firm hiked its rating on Chinese stocks to overweight from equal weight and raised its 12-month price target on the MSCI China index to 84, implying an upside between 15% to 18%. The move came after Beijing unleashed a flood of stimulus measures to aid a deep economic slump, including rate cuts and reducing the amount of cash banks need to have on hand. The announcement prompted massive buying from hedge funds, who piled into beaten-down Chinese stocks like never before. “The recent combined announcements across multiple policy fronts by China’s most senior leadership have led the market to believe that policy makers have become more concerned about taking sufficient action to curtail left-tail growth risk, i.e. the long-awaited “Beijing put” has been triggered,” Goldman strategists said in a note to clients. The iShares MSCI China ETF climbed another 2.7% on Monday, jumping more than 30% from its mid-September low and pushing the fund’s 2024 return to more than 40%. MCHI YTD mountain iShares MSCI China ETF Still, Goldman said its upgrade is a tactical one, meaning a sustainable rally would require continuing evidence of implementation and progress in addressing macro challenges in China. In terms of sector allocations, Goldman raised its rating on Chinese insurance and other financial stocks to overweight due to increased capital market activities and better asset performance. The firm also turned bullish on Chinese metals and mining stocks, driven by measures in the China property market and potential fiscal stimulus. Meanwhile, Goldman said stocks in internet, entertainment, tech, semiconductor and consumer industries are poised to benefit from China’s easing policies — CNBC’s Michael Bloom contributed reporting.