The prospects for Chinese equities look bright and they are likely to continue rising until the middle of next year on the back of the economic recovery and the likelihood of vaccines for Covid-19, according to forecasts by brokerages. At least five mainland brokerages including Citic Securities, China International Capital Corp (CICC) and Huaxi Securities have made the bullish calls, as investment banks start releasing their outlook for 2021. “The market will be in for a slow and rotating bull run-up from the year end to the second quarter next year,” said Qin Peijing, a Beijing-based analyst at Citic Securities, China’s biggest publicly traded brokerage. “China’s recovery is secure and good expectations about the economies overseas will strengthen on the progress on the vaccines .” Huaxi Securities and Pacific Securities have also predicted that the benchmark Shanghai Composite Index will rise to as high as 3,800 next year. That implies a 14 per cent gain from the measure’s last close. The index has risen 9.7 per cent so far this year, making it among the best performing major markets globally. The boost has come after China’s economy emerged from the biggest contraction on record after the successful containment of the coronavirus pandemic and the release of a record amount of liquidity to bolster growth. External demand may pick up further next year on optimism that the pandemic can be brought under control after Pfizer and Moderna recently said that the vaccines they are developing are more than 90 per cent effective in preventing infections. International investment banks Goldman Sachs and Morgan Stanley are also bullish on Chinese equities. Covid-19 vaccine hope brings tailwind to Chinese airlines as CICC predicts a doubling in stock valuation Goldman expects markets to receive a boost from more predictable US-China relations under incoming US president Joe Biden and growth opportunities arising from China’s new five-year plan. “Investors may perceive the Biden administration as a better outcome to US-China tensions or relations, at least from the trade and tariff standpoint,” said Kinger Lau, Goldman’s chief China equity strategist. The bank forecasts that the CSI300, which tracks the 300 biggest stocks on the Shanghai and Shenzhen stock exchanges, could reach 5,600 by the end of 2021 for a 14 per cent surge from Wednesday’s levels. Lau favours an overweight on media, retailing and pharmaceutical and biotech, consumer durables and transportation sectors in China. The strength of mainland stocks will underpin a 12 per cent advance in the Hang Seng Index to 29,700 by the end of 2021, Goldman predicts. China’s stock market anomaly gets PBOC scholars’ attention with model to fix ‘irrational behaviour’ Morgan Stanley analysts also increased their target price to 5,570 for the CSI300 next year, according to the bank’s Asia Emerging Markets Equity Strategy Outlook released earlier this week. Its “ongoing bullish stance” on Chinese equity indices was driven by their forecast of healthy earnings growth recovery, while they held a relatively cautious view on valuation, analysts Laura Wang and Fran Chen wrote in the report. Huaxi Securities, meanwhile, expects profits of China’s listed companies will probably increase 10 per cent from this year, and full-year growth for the small companies trading on the ChiNext board may even reach 32 per cent. Profits of companies listed on ChiNext fell 6.6 per cent from a year earlier in the first nine months of the year. “The driver for stock gains will be shifting to earnings growth from valuation expansion,” said Li Lifeng, a strategist at the brokerage. He recommends buying low-valuation stocks and pulling out of expensive small-caps. The Shanghai Composite, which is dominated by big companies in the traditional industries, is valued at 15.2 times earnings, compared with the multiple of 61 times for the ChiNext small-caps. Still, some are less optimistic. Earnings growth will probably peak in the first quarter and the market may face headwinds in the following quarter, as accelerating inflation prompts policy tightening, according China Merchants Securities. Foreign buying will also probably slow next year, as fast valuation expansion makes the onshore stocks expensive relative to the Chinese shares trading in Hong Kong, according to New Times Securities. Chinese stocks are now 41 per cent pricier than their peers trading in the city, according to a gauge tracking the price discrepancy of the two markets.