Wall Street bank Goldman Sachs said that China's reform efforts to reshape the capital market will significantly boost the overall valuation of the stock market. Another major bank, UBS Group (UBS Group), recently joined the bullish Chinese stock market, raised its recommended rating for the entire Hong Kong stock market, and raised a Chinese stock benchmark index for overseas investors — the MSCI China Index (MSCI China Index), which includes China's core stock assets such as Alibaba, Tencent, and Kweichow Moutai. The index tracks 704 Chinese companies with a total market value of 1.8 trillion US dollars.

Overall, Goldman Sachs believes that the risk appetite of the A-share market may increase in the short term, and the trading environment will also be more favorable; UBS recently upgraded the MSCI China Index and Hong Kong stock ratings to “increase holdings” due to profit flexibility and policy support.

Goldman Sachs analysts led by Kinger Lau wrote in a report on Tuesday that if the Chinese stock market can comprehensively narrow the gap with the world's leading stock market in terms of dividends, share repurchases, corporate governance, and institutional ownership after comprehensive reform, then the overall valuation of the A-share market traded in RMB may rise by about 40% under the most optimistic circumstances.

A rare increase in UBS! Upgraded the MSCI China Index and Hong Kong Stock Ratings to Overweight

At about the same time, UBS upgraded the MSCI China Index and Hong Kong stock ratings to “increase holdings” due to the company's profit flexibility and strong policy support. In August of last year, UBS downgraded the overall rating of the Chinese stock market, which includes A-shares and Hong Kong stocks, to “neutral.”

According to information, UBS, a major international bank, raised the MSCI China Index rating to an increase. The agency's call to bullish the MSCI China Index comes at a critical moment in the Chinese stock market — thanks to stock market policy reforms, the emergence of economic recovery, and the latest signs of improved corporate profits. The Chinese stock market — that is, A-shares and Hong Kong stocks — is expected to break away from the continuous sluggish performance of the past few years.

UBS stock market strategists, including Sunil Tirumalai (Sunil Tirumalai), wrote in the latest emerging market stock strategy analysis report on Tuesday that the largest constituent stocks in the MSCI China Index performed well overall in terms of profit and fundamentals. UBS also upgraded the rating of Hong Kong stocks to increase its holdings, while downgrading markets with a large share of technology stocks such as South Korea to neutral.

According to the index-weighted earnings per share (EPS) calculation method favored by UBS, the overall EPS of the MSCI China Index has declined by only about 2% over the past 18 months, outperforming other emerging market stock benchmark indices — down about 8%.

According to the report, given the early signs of a recovery in consumption, UBS is currently more optimistic about profit prospects, believing that household savings can be converted into consumption and eventually flow into the market.

UBS (UBS) said that the general earnings per share are distorted by the sum of freely tradable shares. In this case, some companies only account for a small share of the index, but they have great influence in terms of earnings per share.

UBS (UBS) strategist Sunil Tirumalai (Sunil Tirumalai) said: “The stocks with the largest market capitalization in the MSCI China Index performed well overall in terms of profit and fundamentals.” “What makes us more optimistic about corporate profits now is that consumption is showing early signs of recovery. This can be seen from the strong holiday consumption data from the beginning to date and the performance of listed consumer stocks is better than overall consumption in the economy.”

The heavy policy involves dividends and repurchases, which is expected to drive up the overall valuation of A-shares

The State Department issued 9-point guidelines earlier this month to support the $9 trillion stock market. Over the past year, the Chinese stock market, including A-shares and Hong Kong stocks, has been in a slump due to poor economic growth prospects and the withdrawal of large numbers of foreign investors. The new policy guidelines emphasize the quality, regulation and investor protection of listed companies, marking a shift from the development focus of the previous policy framework.

This is the third time that the State Council has issued similar policy documents directly targeting the Chinese stock market. The first two were in 2004 and 2014.

Goldman Sachs said in the report: “If necessary policy reform actions become a reality, even in a difficult economic growth environment, untapped reform/policy upward space seems important to the Chinese stock market.” “These changes suggest that in the short term, A-shares may have a stronger risk appetite and a more favorable trading environment.”

The top US investment bank said that under the most basic circumstances, if reform measures can make the Chinese A-share market catch up with the global or regional average, the valuation of the Chinese stock market, or A-share, will expand by about 20%, and under the most optimistic circumstances, the valuation of A-shares may increase by about 40%.

According to some data, Chinese listed companies lag behind their global peers in corporate governance and returns to small investors. According to Goldman Sachs data, Chinese listed companies currently use an average of 33% of corporate profits as dividends; however, in the past 10 years, the dividend ratios of European listed companies and Japanese listed companies were 60% and 50%, respectively.

The data also shows that the share repurchase scale of Chinese listed companies last year was only 0.3% of the total market value, while in the past 10 years, the overall share repurchase scale of S&P 500 companies was equivalent to 2.7% of the average total market value of the S&P 500 index.

The CSI 300 Index (CSI 300 Index), one of the benchmark indices for the Chinese stock market, has risen 2.6% this year, reversing the previous long-term decline. Since this year, in addition to stock market reform measures, the Chinese government has introduced a series of bailout measures, including measures for the “national team” to buy stocks to protect the market and restrict short selling. However, the Shanghai and Shenzhen 300 Index still lags behind other major Asian markets. Japan's blue-chip benchmarks, the Nikkei 225 Index (Nikkei) and the Taiwan Weighted Index, rose at least 9% in 2024.

Editor/Jeffrey