"Investor sentiment has recovered from the bottom, and the fear of market failure has spread," Liu Jinjin, Goldman Sachs China equity strategist, said at the media conference held on May 24.
"Recently, we have indeed seen some improvement in liquidity." Liu Jinjin said, "Since April this year, Chinese stocks have performed brilliantly, and many Asian funds with low allocation in China have begun to lose the benchmark. Investors may further improve their positions in China in the coming months based on performance pressure."
In terms of configuration, Goldman Sachs continued to be bullish on the Internet sector, raised the rating of consumer services and real estate cycle related sectors, and lowered the rating of automobile and industrial consumer goods sectors.
The new "National Ninth Rule" is expected to improve the overall valuation of China's stock market
"Chinese stocks have rebounded 30% since the low point at the end of January, and have outperformed the global stock market in the past few months. Now, investors around the world are more concerned about why Chinese stocks have risen so much and how persistent the rebound is," Liu Jinjin said.
According to Liu Jinjin, there are several reasons for the strong performance of Chinese stocks in recent months: first, at the macro level, China's economic growth has stabilized, especially after the release of the first quarter GDP data, foreign investors have changed their overall macro expectations for China this year, and overseas investors are not so pessimistic about China's macro performance at the beginning of the year.
Secondly, the policy support has achieved initial results, and the recent introduction of the policy has dispelled investors' concerns about tail risk. For example, the market believes that the debt risk of local financing platforms has been greatly improved, and the interest margin of local bonds and local financing platforms relative to national debt has fallen from the historical high point last year to the historical low point.
Thirdly, real estate risks are gradually released. According to Goldman Sachs' latest China Real Estate Risk Weather Index, the risk of real estate has reached 1.6 standard deviations by the end of 2022. With the introduction of real estate policies in the past one or two months, we can see from the market trend that investors believe that the risk of real estate has dropped significantly.
Finally, from the perspective of the capital market, the new "National Ninth Rule" rekindles the hope of reshaping the valuation of China's stock market. According to Liu Jinjin, the introduction of the new "National Nine Rules" in the middle of April has also attracted great attention from overseas investors.
Goldman Sachs believes that if the policy objectives in the new "National Ninth Article" can be achieved, the overall valuation of A-shares will be increased by 20%. "This is purely based on the change of valuation. It is based on the valuation repair that enterprises can obtain by improving the shareholder return rate, and has not yet considered the impact of real estate and other policies on the economy. If we make the most optimistic scenario assumption, and the dividend rate, repurchase rate and other indicators of A shares reach the level of leading markets in Europe and the United States, we think that there will be about 40% room for revaluation of A shares." Liu Jinjin said.
Liu Jinjin said that the most important factor of stocks is the profit growth of enterprises. Judging from the first quarter report of this year, the earnings growth of Chinese stocks exceeded expectations. "On the whole, the market's overall profit forecast for listed companies has gone down, but if we focus on the Internet and consumer oriented sectors, we can see that the recent profit growth is also stabilizing and recovering."
Investor sentiment recovered from the bottom
"Investor sentiment has recovered from the bottom, and the fear of market failure has begun to spread." Liu Jinjin said about the investor sentiment he has recently encountered from global customers.
Liu Jinjin believes that there may be room for further improvement of subsequent liquidity. From the data, the proportion of global public funds and hedge funds allocated to China's stock market is basically at the lowest point in the past decade.
"Since April this year, Chinese stocks have performed brilliantly. Many Asian funds with low allocation in China have begun to underperform the benchmark. Investors may further increase their positions in China in the next few months due to performance pressure. Recently, we have indeed seen some improvement in liquidity," said Liu Jinjin.
Liu Jinjin also mentioned that the valuation of Chinese stocks is attractive compared with other capital markets around the world. According to Goldman Sachs' estimation, MSCI China's current valuation is 10 times PE, which is in equilibrium. If profit growth can be realized, there may be more room for growth in the future.
Continue to be optimistic about the Internet, and raise the banking and real estate sectors to neutral
"There are many investment opportunities in China's stock market." Liu Jinjin said that Goldman Sachs recently raised its forecast for Hong Kong stocks and A-shares, raising the target point of Shanghai and Shenzhen 300 from 3900 to 4100 in the next 12 months, and maintaining the proposal of high allocation of A-shares.
According to Liu Jinjin, according to the Goldman Sachs A-H market rotation model two months ago, Hong Kong shares have the opportunity to outperform A-shares in the next three months; However, the latest prediction of the model shows that the market performance of A-share and H-share will be more consistent in the next three months.
In terms of allocation, Goldman Sachs continued to be bullish on the Internet sector and raised the allocation suggestions for consumer services and real estate cycle related sectors. At the same time, with the introduction of real estate policies, Goldman Sachs adjusted the rating of banks and real estate sectors from low allocation to neutral. In terms of rating downgrade, Goldman Sachs downgraded the auto sector and industrial consumer goods from neutral to low allocation, mainly out of concern about overcapacity and high domestic deflationary pressure.
"In the context of rising global interest rates, high dividends have been one of the best performing strategies in recent years. We believe that the improvement of shareholder returns will be the theme favored by investors around the world in the next three to six months." Liu Jinjin said.
According to him, in the past year or two, stocks with high dividends have outperformed the market as a whole. Against the background of high overseas interest rates, investors need to see the profit returns, dividends and buybacks of real gold and silver. This trend will continue in the future. Goldman Sachs believes that there is still much room for Chinese stocks to increase the dividend ratio. At present, the dividend ratio of A-shares and Hong Kong stocks is about 30%, which is still far from the global average. If the dividend ratio of China can be increased from 30% to 40-50%, the overall dividend return will be greatly improved.
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