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According to Renaissance Macro’s Jeff deGraaf, Chinese stocks are poised for a huge rise in the coming year.
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The research firm’s CEO said there are perfect conditions for additional gains of more than 50%.
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Other notable investors tried to buy the dip in Chinese stocks amid continued stimulus efforts.
China’s stock market rally isn’t over yet — and according to one Wall Street forecaster, the country could have the perfect cocktail of ingredients to stage a monstrous run-up in the coming year.
Jeff deGraaf, the CEO of Renaissance Macro Research, says he sees China’s benchmark stock index rising to 6,000 in the coming year. That implies a 54% upside from the CSI 300’s current levels, thanks to the right mix of conditions in Beijing that should push stocks higher, he told Bloomberg on Friday.
“Skepticism, appreciation, stimulus, momentum and a trend change,” deGraaf said of China’s investment climate, adding that it was “one of the best setups” he has seen during his 35-year career.
Chinese stocks have been on a rollercoaster in recent weeks after Beijing announced its latest monetary stimulus package, which included cutting interest rates and pumping $114 billion into the stock market. The package led to the strongest rally in Chinese shares since 2008 before quickly collapsing, a sign that investors were disappointed that Beijing did not announce more stimulus.
However, markets expect the country to announce a new fiscal stimulus package at a briefing on Saturday, potentially reviving the bull case for equities. Most investors expect China to add 2 trillion yuan (or $283 billion) in fiscal stimulus through 2025, according to a Bloomberg poll of market participants.
“We see the policy response as self-preservation, a response to the weakness and a potential Mario Draghi-esque ‘Do whatever it takes’ moment for China,” DeGraaf said, later urging investors to “put the stops in place.” hold’ when they gamble on Chinese stocks.
Other Wall Street traders have shown interest in buying the dip in Chinese stocks, despite fears that Beijing’s economic slowdown may continue.
Investors poured a record $39.1 billion into Chinese stock funds in the week ended Oct. 9, according to data from EPFR Global cited by Bank of America in a note.
“We buy all the Chinese dips,” BofA strategist Michael Hartnett wrote in a note. Incentive efforts will be “aggressively used to stimulate the spirit and demand of pets,” he added.
In addition, Shenzhen Huaan Hexin Private Investment Fund Management Co., a Chinese hedge fund that is up 800% since 2017, says it is also buying the dip in technology stocks listed in Hong Kong. The Hang Seng Index has fallen 3% over the past five trading days, but is still 27% higher than at the start of the year.
“Such a correction looks more like a buying opportunity,” Yuan Wei, the fund’s founder, said in an interview with Bloomberg this week. “When you compare it to their fundamentals, the shares remain very cheap.”
China’s domestic market has a 50% chance of another bull run, rather than a short-term recovery, and the bear market in equities should now be over, Yuan said.
“The market is just recovering from an extremely bearish level to a level that is still undervalued,” he added later.
Other Wall Street strategists have made bullish calls on Chinese stocks in recent weeks, with their eyes on continued stimulus measures in Beijing. Goldman Sachs forecast that China’s stock market could rise another 20% thanks to “more substantial policy action” and overselling of Chinese stocks, strategists said in a note.
Read the original article on Business Insider
