Factbox: Global investment banks upgrade China equities, brace for weaker yuan

SOL Global Investments

03/05/2024 10:00

(Adds BofA comments, updates lead and stock prices)
       HONG KONG, May 3 (Reuters) - 
    Global investment houses are increasingly bullish about
Chinese stocks as resilient corporate earnings, policies to
support the economy and enhance shareholder returns, boosted
sentiment
  
    China’s top securities regulator issued draft rules in April
aimed at bolstering the ailing stock market, including
strengthening the supervision of company listings, improving
corporate governance, encouraging dividend payouts, and
fostering long-term investment.
    The country's blue chip index  .CSI300  has risen 5%
year-to-date, and has bounced more than 10% from the trough on
February 2. Hong Kong's Hang Seng Index has jumped 8%
year-to-date with a 7.4% gain in April alone. 
        MSCI China  .dMICN00000PUS , which tracks both onshore
and offshore Chinese stocks, has also rallied 7% so far this
year. 
    
Here is a summary of some house views on China stocks:
             INVESTMENT               April 2024
 HOUSE                    
                          
             UBS          Upgrades China and Hong
                          Kong stocks to overweight
             Goldman      Expects an up to 20%
 Sachs                    upside in China A-shares
                          
                                      May 2024
                          
             BofA                     Says China
 Securities               stocks have bottomed out
                          
 
    KEY COMMENTS:
    BofA Securities:
        "The flow of selling in January turned into flow of
buying in April, and other market chatters fuelling the rally
include a potential quantitative easing by the PBOC, property
easing from the April Politburo meeting, overseas Chinese
re-allocating assets back to HK, etc."
  
        "We believe the worst of China market, in terms of fund
outflow and multiple de-rating, should be behind us, at least
for 2024."
  
    UBS
    "The largest stocks in the China index have been generally
fine on earnings/fundamentals. So China underperformance is
purely due to valuation collapse."
    "What makes us more positive now on earnings are the early
signs of pick up in consumption - as seen through robust festive
holiday spending numbers year-to-date, listed consumer stocks
performing better than general consumption in the economy."
    
    Goldman Sachs
    "We triangulate the potential policy-driven upside through
the lens of shareholder returns, corporate governance standards,
and institutional investor ownership."
    "Our analysis suggests that A-shares could rise 20% if they
could narrow the gaps with international averages along these
dimensions, and could re-rate as much as 40% if they catch up
with global leaders in our blue-sky scenario.“    

    YUAN
    Investment banks expect the yuan to hit a trough of about
7.3 per dollar in coming months, before recouping some of the
loss to 7.19 at the end of this year.
    The Chinese currency  CNY=CFXS  has lost 2% to the dollar so
far this year, but its value against its major trading partners,
as measured by the CFETS index  .CFSCNYI , has risen 3% to
100.4, according to Reuters calculations based on the official
data.
    
Here is a summary of some forecasts for the Chinese currency:

                                              
 INVESTMENT HOUSE   end-Q2       end-Q3        end-2024
                                              
                    7.3          7.25         7.2
 GOLDMAN SACHS      (in 3-month  (6-month)    (12-month)
                    horizon)                  
                    7.3                       7
 STANDARD                                     
 CHARTERED BANK                               
                                              
                                 7.3          
 BARCLAYS                                     
                                              
             RBC    7.26         7.3          7.25
 CAPITAL MARKETS                              
                                              
             BOFA   7.35         7.45         7.45
                                              
             UBS                              7.1-7.2
                                              
             SEB                              7.1
                                              
             ING    7.25         7.18         7.12
                                              
 

 (Reporting by Summer Zhen and Winni Zhou; Editing by Michael
Perry and Sharon Singleton)
 ((summer.zhen@thomsonreuters.com; 852-3462-7739;))