Goldman says China stocks could advance another 20%

(Bloomberg) — Goldman Sachs Group Inc . updated its call on Chinese stocks to overweight as it joined a camp of bullies touting the positive impact of Beijing’s stimulus blitz.

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Instruments that track domestic stocks could rise another 15%-20% if authorities stick to policy measures, strategists including Tim Moe wrote in an Oct. 5 note. Valuations are still below historical averages, earnings could improve, and global investor positioning remains intact. light, they added.

Recent stimulus announcements “led the market to believe that policymakers have become more concerned about taking sufficient action to reduce the risk of left-tail growth,” the strategists wrote.

Beijing’s stimulus bonanza has sparked a flurry of upgrades by Wall Street heavyweights including HSBC Holdings Plc and BlackRock Inc. as expectations grow that the once-downbeat stock market has finally picked up. The CSI 300 is up 27 percent from a September low, and traders will be watching to see if they continue their gains when onshore markets reopen on Tuesday after a holiday.

Goldman raised its target for the MSCI China index and the benchmark CSI 300 index to 84 and 4,600, respectively, implying a total return of 15%-18% from current levels.

Still, Goldman warned of potential challenges, including a weaker-than-expected fiscal stimulus push, profit-taking, as well as the U.S. election and tariff risks.

Goldman’s team downgraded Hong Kong-listed Chinese shares last November, citing modest earnings growth. Since then, the gauge has been largely capped until last month and rose as much as 2.7% on Monday.

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