Chinese stocks fall after recent rally, but Goldman Sachs remains positive

Investing.com-- Chinese stock markets retreated from 2024 highs in recent weeks, as a stellar two-month rally- driven by optimism overt stimulus- now appeared to be easing. 

But Goldman Sachs analysts said that the recent pullback had not changed their bullish view on Chinese stocks, and that they remained overweight on the country’s blue-chip stocks. 

China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes fell between 2% and 4% from 2024 highs over the past two weeks, after rallying nearly 20% since February. This was in part driven by profit-taking driving some correction, renewed concerns over U.S.-China trade ructions and as investors waited to see how Beijing will fund and execute its latest line of stimulus measures, particularly those aimed at the property market. 

GS analysts said that they remained bullish on Chinese stocks, with their preferred sectors consisting of the service economy, consumption-exposed stocks and stocks with a high potential for global expansion.

They also remained focused on earnings delivery from major Chinese firms, and were on the lookout for increased shareholder returns, such as buybacks and dividends.

GS expects a 12% upside from the CSI300 in the next 12 months. 

Analysts noted that the outlook for Chinese markets still remained positive in the face of what they saw as a clear shift in policy stance, particularly towards the property market. 

The upcoming Politburo meeting in July is expected to provide more cues. 

They also said that Chinese stocks had grown less sensitive to tensions with the U.S., although the upcoming 2024 Presidential elections remained squarely in focus for potential volatility. 

The earnings outlook for Chinese stocks also remained mixed, with particular focus on whether property earnings will stabilize with the new wave of government support.