Goldman Sachs bets on big Chinese stock upside despite dour 4.5 per cent GDP growth forecast and client scepticism

Goldman Sachs is betting that Chinese stocks will deliver a 23 to 29 per cent upside this year, after its bottom-of-the-pile ranking last year, but clients have some reservations following widespread Covid-19 lockdowns.

Scepticism of China’s ability to achieve its 5.5 per cent gross domestic product target has risen among the investment firm’s mainland clients, including private equity funds, hedge funds and asset managers. These clients have slashed their GDP growth targets for the year, as China battles its worst Covid-19 outbreak since 2020.

“A majority of local clients think [around] 4 per cent GDP growth is probably more realistic,” said Goldman analysts including Maggie Wei in a note published on Friday. “Having said that, local clients have mixed views on whether Chinese policymakers would tone down or change the GDP growth target this year.”

Even as doubts about China’s challenging growth target pile up, amid the lack of concrete policy easing and global stagflation woes, the US bank remains bullish on China. It forecast a 23 per cent upside for the MSCI China Index over the next 12 months, after a disastrous 22 per cent slump last year as the worst-performing stock benchmark. For the CSI 300, it expected a 29 per cent upside over the next 12 months.

Goldman’s China clients are not ruling out further Covid-19 outbreaks this year, with the economic cost of containing the pandemic mounting. To stamp out the virus, China saw several large cities including Shenzhen and Shanghai institute citywide lockdowns in March, further weighing on the world’s second-largest economy and threatening to derail global supply chains already under strain.

As of Friday, Goldman Sachs estimated multiple sectors accounting for about a quarter of China’s GDP to be either high or medium risk.