Thursday, April 1, 2010
Goldman touts China
And it's not an April's Fool! What will the bears do now???
We are recommending a new top trade – a long position in Chinese equities via ‘H’ shares (HSCEI Index), with a target of 15000, about +20% above current levels.Chinese equities have underperformed developed market equities, and also other emerging markets over the past nine months or so. Economic growth has stayed robust and broad based, for 2010 we expect real GDP growth to realize significantly above consensus (11.4% vs. 9.9%), and we are also above consensus for 2011.While interest rates will likely rise soon, this risk is much better flagged than before. Besides, equity valuations are at undemanding levels – 12.6 on 2010 forward earnings and 10.6 on 2011 forward earnings. Despite these supportive fundamental arguments, we sense that Chinese equities have fallen off investors’ radars, positioning is light, and sentiment is, at best, skeptical, making us all the more keen to get involved. The most obvious risk here is that we are too early to this trade. The actual fact of interest rate tightening and the potential naming of China as a “currency manipulator” may be temporary equity market downers even if they are better known today. But Chinese equities already look to have formed a bottom, and we do not want to be late to this move given a robust strategic view.
GS main april 1 -
Posted by Palmoni at 11:30 AM