(Yicai Global) March 15 -- Goldman Sachs Group, Inc. holds a bullish view on China's stock market. In a recent report, the investment bank analysts believe that more and more significant signs show that the Chinese economy has begun to recover.
Goldman Sachs Hong Kong analysts Kinger Lau and Timothy Moe raised the rating on China's stock market to overweight in a report released this week, and forecasted the Morgan Stanley Capital International China Index (MSCI China Index) to rise from 68 to 73 in the next 12 months, which means that China's stock market will rise by as much as 25 percent in 2017.
"Considering that the election of delegates to the 19th CPC National Congress will be started this fall, prior policy measures will continue to provide support for the market," Goldman Sachs analysts expected. Goldman Sachs's report has greatly boosted investor confidence. On Monday, Hong Kong stock market opened high, and Hang Seng China Enterprise Index rose 1.5 percent, of which the financial sector was the most eye-catching, up 1.1 percent.
Since the beginning of this year, the MSCI China Index has climbed 11 percent, surpassing the overall performance in Asia, except for Japan, which nearly doubles the 5.6 percent increase in the global stock markets. After Goldman Sachs downgraded China's stock market to "market weight" on December 1 last year, robust economic data substantially enhanced the attractiveness of Chinese assets.
In addition, Goldman Sachs listed several other factors that support its bullish expectations about the Chinese market. It forecasts that China's nominal GDP annual rate is likely to reach 11 percent in the first quarter. Second, it points to the upward risk of bank earnings. In keeping with the robust nominal GDP growth and upward risk of bank earnings, Goldman Sachs raised the 2017 and 2018 earnings per share in China's stock market to 13 percent and 11 percent, respectively.
Third, it cites a more appropriate level of entry. Since December 2016, the mainland China stock market and the Hong Kong stock market have pulled back 4 percent from high, but still lagged behind the Asia-Pacific region and the emerging markets, creating a more appropriate level of entry for investors. Goldman Sachs predicts that there will be USD54 billion worth of funds that it says will flow into mainland China from Hong Kong.