“Reminiscent of a transition from the Hope to Growth phase in a typical equity cycle,” commented Goldman Sachs on the performance of Chinese stock market.
Goldman Sachs suggests that the Chinese stocks are in a correction zone dropping from its peak on Jan 27th, transitioning from a reopening phase to a recovery phase. Correction territory is referred to when an index declines by more than 10% from its peak. Now, Goldman Sachs expects the MSCI China Index to grow by 24% in 2023 after cutting its earnings outlook to zero growth in July. Can the Chinese market perform as expected or miss the consensus?
The Shenzhen Composite Index performed well throughout the week as optimism on China's recovery was bolstered by stronger-than-expected economic figures that matched Goldman’s expectations.
China's manufacturing sector grew more than anticipated in February as Asia's largest economy removed tight Covid limits, while the country's services sector also had strong growth. Technology and Telecommunication sectors strongly outperformed, including stocks such as Inspur Electron, Kunlun Tech (13.5%), 360 Security, and ZTE Corp (2%).
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Figure 1: SZSE Composite Index, 1D| Source: TradingView
In terms of economic growth, Goldman Sachs projects that the Chinese economy will expand by 5.5% in 2023 overall, driven by growth in the second and third quarters that it currently pegs at 9% and 7%, respectively.
“The growth impulse should be heavily tilted towards the consumer economy, where the services sector is still operating significantly below the 2019 pre-pandemic levels,” said Goldman Sachs experts, emphasizing the $437bn in surplus savings held by Chinese families this year, equivalent to more than 3 trillion Yuan.
As China’s economy starts to pick up, we would now have reason to believe that the global economy is recovering from the instability witnessed from the pandemic.
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