Source: Guoshi Direct
Author: Xia Bin

Recently, chief economists from foreign institutions have been speaking intensively, with strong, rebound, and high allocation becoming key words when discussing the performance of china's economy and financial markets.

The fourth quarter welcomes a strong start.

In the view of Xiong Yi, chief economist of deutsche bank in china, the national economic data for october indicates that china's economy is welcoming a strong start in the fourth quarter.

Xiong Yi pointed out that with the ongoing implementation of the "two new" (large-scale equipment upgrades and the replacement of old consumer goods), the consumer market continues to warm up, and the consumption potential is further released. Among them, the sales of home appliances, furniture, and autos have seen significant growth, with the total retail sales of consumer goods in october rebounding significantly, a year-on-year increase of 4.8%, with a growth rate accelerated by 1.6 percentage points compared to the previous month. The service industry production index grew by 6.3% year-on-year, and the growth rate accelerated by 1.2 percentage points compared to the previous month.

In addition, the decline in housing prices has narrowed, and the real estate market is gradually stabilizing, with several easing measures in monetary and fiscal policies further enhancing the vitality of the capital markets. Meanwhile, the growth rates of industrial production and fixed asset investment remain flat compared to last month.

Xiong Yi said that these signs indicate that china is making every effort to stimulate endogenous consumption momentum while expanding domestic demand through multiple channels. "If the current growth momentum can be sustained until the end of the year, it is expected that there is further room for an increase in china's economic growth rate."

Morgan Stanley's chief economist for China, Xing Ziqiang, believes that a series of macro policies introduced since September have played a significant role in stabilizing the economy and boosting confidence.

Xing Ziqiang stated that debt swaps can not only reduce the government's interest expenses but also help local governments repay debts owed to enterprises, thus improving local enterprises' liquidity and balance sheets. More importantly, it helps stabilize the regulatory environment and restore entrepreneurs' confidence.

Continue to 'overweight' A-shares.

Regarding the stock market, Goldman Sachs' chief China equity strategist, Liu Jinjing, stated that Goldman Sachs continues to recommend an 'overweight' position in the A-share market, predicting that driven by EPS growth and valuation factors, the MSCI Chinese Index and CSI 300 Index will rise by 15% and 13% respectively in 2025.

Liu Jinjing indicated that policy adjustments have reduced tail risks in the Chinese stock market in 2024 and led to a revaluation of valuations. In 2025, further implementation of policies may drive EPS growth and moderate valuation increases.

On the funding side, Goldman Sachs' research team believes that the shift in capital flows driven by policy may accelerate in 2025. Before long-term growth and policy outlooks become clearer, investors focusing on absolute returns might continue to trade Chinese stocks opportunistically.

It should also be noted that the decline in risk-free interest rates, policy support for the Chinese stock market, and improvements in risk appetite all indicate that there is significant potential for individual investors to increase their stock allocations.

Chief strategist Luo Bole from Swiss Partners Asset Management has also upgraded the rating of Chinese stocks from 'neutral' to 'overweight', citing a strong economic outlook.

Despite the recent significant rise in A-shares, Lu Bole believes there will be more gains in the coming months. Considering that the total market value of A-shares is at a 20-year low relative to the money supply, its valuation remains attractive. In terms of sectors, the swiss franc bank recommends maintaining a barbell strategy, which means overweighting cyclical financial sectors and defensive utility sectors.

Investment in consumer spending may accelerate growth next year.

Looking ahead to the economic situation in china next year, Goldman Sachs chief economist for china, Shan Hui, stated that chinese exports will remain relatively stable in 2025, with consumer spending, particularly in commodities, performing well. As local governments accelerate debt management efforts, easing local financing pressures and enabling fiscal expansion, government investments and consumer spending may accelerate.

She is also bullish on the prospect of new incremental policies being introduced, suggesting that future policies should focus on stimulating domestic demand, with greater attention on continuously supporting social security, such as increasing the basic pension levels for rural areas, improving the unemployment insurance system, and increasing subsidies for families with multiple children. Additionally, the policy for replacing old consumer goods with new ones could consider further expanding the types and scale of subsidies.

In the real estate sector, which is a focus for the market, Xing Ziqiang suggested that the next policy recommendation should utilize the central government's balance sheet to help digest the 'waterlogging' in real estate inventory, shorten the adjustment time for real estate, convert it into affordable housing, and transform it into social security benefits.

Editor/rice