Goldman Sachs China Commentary
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Jul 21- 25: Market rallied on macro and policy stance
China equities performed strongly this week in both offshore and onshore markets (MXCN +3.5%, CSI300 +4.5%, MXAPJ +1.8%).
Sentiment was significantly boosted by dovish newsflow during the week, including MBS issuance, PSL lending to CDB and property
purchase restriction relaxation in more cities. The State Council’s intention to reduce funding cost of the real economy further
strengthened investors’ confidence. At the same time, Jul flash HSBC PMI came in at 52, indicating that the macro recovery is on
track. Global factors were mixed amid mixed DM macro data and geopolitical tensions.
This week’s performance summary
Sector performance clearly skewed to high beta
names this week. Commodities (metals/mining,
building materials steel/aluminum) all
outperformed in both markets thanks to ASP
recovery of certain metals, which is partly
attributable to higher demand expectations on
stabilizing China economy. Property rallied too in
both markets thanks to favorable policies relaxing
restrictions and newsflow about falling mortgage
rates in certain cities. Financials also fared well
thanks to higher sensitivity to macro trends and
exposure to equity market. Weaker than expected
1H earnings of Citic Securities did not impact
sentiment. Autos outperformed in A-share after
Great Wall’s better than expected results but the
sector still lagged offshore. On the flip side,
defensives such as healthcare, telecom and
staples broadly underperformed in both markets
admist the risk-on mode market.
GS Research views
We expect strong performance from the equity
market on both an easing policy stance and growth
recovery. Looking ahead, we remain near term
tactically positive although the road may be bumpy
entering earnings season. From a medium term
perspective, only structural reforms can uplift
equity valuation, in our view.
AI
