Buy Chinese stocks, says Goldman Sachs
The recent bear in Chinese markets has left stocks undervalued due to traders overlooking fundamentals for macroeconomic data
Despite China’s prolonged stock market volatility and far from optimistic economic outlook, now is a good time to buy Chinese equities, according to the analysts at Goldman Sachs. Recent sell-offs, they argue, have been overplayed, leading to certain stocks being undervalued.
The pessimism of many traders in Chinese equity is misplaced, according to the bank
According to Goldman Sachs, this is due to a change in the way traders are making their decisions when it comes to China. Rather than looking at financial underpinnings of companies, macroeconomic conditions are motivating sell-offs. Chinese stocks are not being sold due to concerns over the actual value of shares, but a general weariness of the future of the Chinese economy.
The pessimism of many traders in Chinese equity is misplaced, according to the bank. The disappointing economic data, it is argued, is already factored into price. Researchers at the bank note that while they recognise “the cyclical and well-documented structural headwinds that China currently faces…these concerns [already] seem quite well priced in Chinese equities from various valuation methodologies that we have discussed,” reports Business Insider.
The undervaluation of Chinese stocks, stemming from misplaced macroeconomic concerns, the bank claims, could see share prices surge by 37 percent in the future. Indeed, after a few bearish days starting with a so-called “Black Monday” which saw Chinese shares fall by around eight percent, August 26 saw an impressive market rally. In the 45 minutes before markets closed, shares recovered by five percent.
While many commentators have a gloomy outlook for the Chinese economy, Goldman Sachs’ researchers are more optimistic, also arguing that China’s economic growth would pick up in the fourth quarter of this year, recovering from the third quarter’s weak growth.
