Goldman forecasts surge in H shares

Investment bank says mainland firms listed in Hong Kong will enjoy biggest gains in 5 years

PUBLISHED : Wednesday, 04 December, 2013, 5:27am
UPDATED : Wednesday, 04 December, 2013, 5:27am

Mainland stocks trading in Hong Kong will next year post the biggest gain since 2009 on prospects the economy will stabilise, Goldman Sachs said.

The Hang Seng China Enterprises Index, or H-share index, will rally 18 per cent to 13,600 points by the end of next year, Noah Weisberger, a New York-based analyst at Goldman wrote in a report on Monday.

The advance would be the biggest since the gauge surged 62 per cent in 2009.

Manufacturing growth beat analyst estimates last month, indicating the mainland's economic recovery is sustaining momentum amid government efforts to rein in credit growth.

Goldman's China market forecast forms part of a trade recommendation in which the bank is telling investors to buy mainland stocks while selling copper as a bet that commodities will lag the rally in equities. Goldman called the trade its fourth top recommendation for next year.

"Equities are our favourite asset class in an environment where growth is moderate but not overheating, while policymakers remain accommodative," Weisberger said. "For the first time in the last several years, we would argue to own exposure to China through the Chinese equity market."

Beijing last month vowed to allow more private investment in state-controlled industries, loosen its one-child policy and better protect farmers' rights in the most sweeping reforms in two decades.

Economists estimate gross domestic product will expand 7.5 per cent next year after growing 7.6 per cent this year, according to the median projection in surveys last month. Beijing set a target for 7.5 per cent expansion this year.

While the H-share index this week hit the highest level since February 20, it still trades 19 per cent below its average valuation of the past five years, according to data based on estimated earnings. The index yesterday closed 0.86 per cent lower at 11,448.35 points.

"We've been positive for China for quite some time and it's an overweight country for us," said Allan Conway, the head of emerging market equities at Schroder Investment Management in London.

Mainland stocks account for about 22 per cent of his portfolio.