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Goldman Sachs lowers MSCI China Index and earnings targets amid new headwinds for the Chinese economy

  • The MSCI China Index of 717 stocks is likely to end at 81 in the next 12 months, compared with an earlier forecast of 84, according to Goldman analysts
  • The earnings growth for the index constituents has been cut to zero from 4 per cent, compared with the market consensus for an 8 per cent increase

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Goldman Sachs has cut the MSCI China Index target by almost 4 per cent and expects no profit growth because of the mortgage boycott. Photo: Reuters
Zhang Shidong
Goldman Sachs has lowered the price target of MSCI China Index by 3.6 per cent and expects no earnings growth for publicly traded companies this year, as the ongoing mortgage loan boycott poses a new downside risk to the economy.
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The MSCI China Index of 717 stocks with a combined market capitalisation of US$2.3 trillion, which includes Alibaba Group Holding and Tencent Holdings, will probably finish at 81 in the following 12 months, compared with the previous estimate of 84, analysts led by Kinger Lau at the US investment bank wrote in a report dated July 21. The gauge closed at 69.55 on Friday, 16 per cent shy of Goldman’s latest target.

Goldman also cut the 2022 earnings growth for the index constituents to zero per cent from 4 per cent, against the market consensus projection for an 8 per cent increase, according to the report.

The mortgage boycott, which erupted at the end of June, is the latest setback for China’s embattled developers who are struggling because of a liquidity crunch, funding restrictions imposed by regulators and a slew of bond defaults. The episode also poses a challenge to top policymakers, who now have made growth stabilisation a top priority after largely bringing the recent flare ups in Covid-19 outbreaks under control.
Evergrande residential buildings under construction in Guangzhou, in China’s southern Guangdong province, on July 18, 2022. Photo: AFP
Evergrande residential buildings under construction in Guangzhou, in China’s southern Guangdong province, on July 18, 2022. Photo: AFP

While Goldman Sachs argues that the chance of a systemic risk arising from the mortgage boycott is low, its impact on the economy and sectors such as banks, is conspicuous, as China’s US$60 trillion property market accounts for about a fifth of the gross domestic product and represents roughly 60 per cent of household asset allocations. The US investment bank lowered this year’s projection for China’s GDP growth to 3.3 per cent from 4 per cent.

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