(Bloomberg) – Goldman Sachs Group Inc. has upgraded its overweight call on Chinese stocks to overweight, joining a camp of optimists touting the positive impact of Beijing’s stimulus blitz.
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The gauges tracking the country’s stocks could rise another 15% to 20% if authorities implement policy measures, strategists including Tim Moe wrote in an Oct. 5 note. Valuations are still below historical averages, earnings could improve and global investor positioning remains intact. light, they added.
The recent stimulus announcements “have led the market to believe that policymakers are increasingly concerned about taking sufficient action to contain left-wing growth risk,” the strategists wrote.
Beijing’s stimulus boost has prompted a wave of upgrades by Wall Street heavyweights including HSBC Holdings Plc and BlackRock Inc., as expectations grow that the once-beaten stock market has finally turned a corner. The CSI 300 Index is up 27% from the low it reached in September and traders will be looking to see if the index builds on its gains when domestic markets reopen on Tuesday after a holiday.
Goldman raised its targets for the MSCI China Index and the benchmark CSI 300 Index to 84 and 4,600 respectively, implying a total return of 15%-18% from current levels.
Still, Goldman warned of potential challenges, including weaker-than-expected fiscal stimulus, profit-taking, the U.S. election and tariff risks.
Goldman’s team downgraded Hong Kong-listed Chinese stocks last November, citing modest earnings growth. Since then, the gauge has been largely range dependent until last month, rising as much as 2.7% on Monday.
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