Foreign institutions stay positive on China’s capital market, seeing investment opportunities in medium and long term

Foreign institutions have continued to look positively at the Chinese capital market. Goldman Sachs was among the latest to express optimism on Chinese shares by continuing to recommend a "high allocation" to the A-share market.

Driven by earnings per share growth and valuation factors, the MSCI China Index is expected to rise by 15 percent in 2024 and the CSI 300 Index to rise by 13 percent, Goldman Sachs said on Wednesday at a media roundtable held to discuss the 2025 outlook for China's economy and capital market, according to the China Securities Journal.

Goldman Sachs said that thanks to favorable policies, the value of A-share repurchases in 2025 may double from 2024. In 2025, the total dividends and buybacks of China's listed companies may exceed 3 trillion yuan ($414 billion). The willingness of individual investors to enter the market will further increase.

Neuberger Berman said that it maintains a positive judgment on China's capital market. The policy window has not closed. It is expected that the broad fiscal expenditures of the central and local governments in 2025 will rise moderately compared with this year, Neuberger Berman said in a monthly China market outlook published on November 13.

A-shares are still full of investment opportunities in the medium and long term, AllianceBernstein said in early November, according to the China Securities Journal.

AllianceBernstein said that the medium- and long-term trend of A shares is highly related to domestic macroeconomic and corporate profit prospects. "Judging from the support and determination of the current policy, China's domestic economy is expected to stabilize and recover and drive corporate earnings growth, making A shares attractive," it said.

With supportive policies in place, there has been a more obvious rebound in the market, which is expected to have a better performance in the future, Yang Delong, chief economist at Shenzhen-based First Seafront Fund, told the Global Times on Wednesday.

"From the perspective of global capital market comparisons, the European, American, and Japanese stock markets have risen for many years, and the current valuations are generally at historical highs, while A-shares and Hong Kong shares are at historical lows," said Yang.

AllianceBernstein also said that with a price-to-earnings ratio of about 12.7 times, A-shares are among the cheapest of the world's major stock markets. This means that from a global asset allocation perspective, it is indeed a good time to rethink short positions in Chinese equities.

"The foundation for the long-term, healthy development of China's capital market is still solid, and we should maintain confidence and patience," Yang said.

Yang also pointed out that another US Federal Reserve (Fed) rate cut by 25 basis points (bps) is expected in December, and another three to four rate cuts are likely in 2025. This will lead to a pullback in the US Dollar Index, and non-US currencies, such as the yuan, are expected to rebound.

"The appreciation of the yuan is often accompanied by the restoration of the valuations of yuan assets. This is also conducive to attracting global capital inflows to the A-share and Hong Kong stock markets," said Yang.

On November 8, the Fed lowered the target interest rate range by 25 bps to 4.5-4.75 percent. On September 19, the Fed cut the federal funds rate by 50 bps, which was the first cut since March 17, 2020, according to data from the Fed's website.