Goldman Sachs 2014 China Strategy
December 6, 2013
China H-Share Strategy
2014 Outlook: Revving up for reform
Portfolio Strategy Research Stable cyclical picture sets the stage for reform
We believe China is entering a transformational stage of ambitious reforms to address deep-seated structural issues and lift growth sustainability, as laid out in the Third Plenary. As such, we reiterate our long-held view that reform will play an increasingly dominant role in driving Chinese equities. With a sanguine global GDP outlook and stable China GDP growth of 7.8% in 2014E, we believe the cyclical environment will offer a solid foundation for reform carry-through. Striking the right balance between cyclical stability and reform advancements will be key; we expect the following issues to drive the overall equities return, market path and relative winners in 2014E: external demand/export strength, leverage trends, structural reform focus and organic growth areas.
Helen Zhu
+852-2978-0048 helen.zhu@gs.com Goldman Sachs (Asia) L.L.C.
Ben Bei
+852-2978-1220 ben.bei@gs.com Goldman Sachs (Asia) L.L.C.
Timothy Moe, CFA
+852-2978-1328 timothy.moe@gs.com Goldman Sachs (Asia) L.L.C.
Jason Sun
+86(10)6627-3187 jason.sun@ghsl.cn Beijing Gao Hua Securities Company Limited
Strong upside, front-end loaded returns
We believe that the right balance will be struck in 2014E and thus are constructive on market returns - we forecast 77.5 and 13,600 as end 2014E targets for MSCI China and HSCEI, translating to 18% upside. Returns will be comprised of both earnings growth (10%) and slight valuation uplift (from 9.4X to 9.9X fPER). We expect a front-end loaded path, as reform momentum continues on follow-up release of detailed reform blueprints in the coming months, and cyclical growth accelerates mildly. Later in 2014E, short-term market pullbacks could result from global factors, decelerating growth, or slow reform progress, in our view. We would then expect the market to rise along with reform
China H-Share Strategy
2014 Outlook: Revving up for reform
Portfolio Strategy Research Stable cyclical picture sets the stage for reform
We believe China is entering a transformational stage of ambitious reforms to address deep-seated structural issues and lift growth sustainability, as laid out in the Third Plenary. As such, we reiterate our long-held view that reform will play an increasingly dominant role in driving Chinese equities. With a sanguine global GDP outlook and stable China GDP growth of 7.8% in 2014E, we believe the cyclical environment will offer a solid foundation for reform carry-through. Striking the right balance between cyclical stability and reform advancements will be key; we expect the following issues to drive the overall equities return, market path and relative winners in 2014E: external demand/export strength, leverage trends, structural reform focus and organic growth areas.
Helen Zhu
+852-2978-0048 helen.zhu@gs.com Goldman Sachs (Asia) L.L.C.
Ben Bei
+852-2978-1220 ben.bei@gs.com Goldman Sachs (Asia) L.L.C.
Timothy Moe, CFA
+852-2978-1328 timothy.moe@gs.com Goldman Sachs (Asia) L.L.C.
Jason Sun
+86(10)6627-3187 jason.sun@ghsl.cn Beijing Gao Hua Securities Company Limited
Strong upside, front-end loaded returns
We believe that the right balance will be struck in 2014E and thus are constructive on market returns - we forecast 77.5 and 13,600 as end 2014E targets for MSCI China and HSCEI, translating to 18% upside. Returns will be comprised of both earnings growth (10%) and slight valuation uplift (from 9.4X to 9.9X fPER). We expect a front-end loaded path, as reform momentum continues on follow-up release of detailed reform blueprints in the coming months, and cyclical growth accelerates mildly. Later in 2014E, short-term market pullbacks could result from global factors, decelerating growth, or slow reform progress, in our view. We would then expect the market to rise along with reform