Overweight A-shares! International investment banks speak out collectively

During the National Day holiday when A-shares were closed, the outstanding performance of Hong Kong stocks and U.S.-listed Chinese stocks became the focus of the global market.

Recently, major foreign banks including Morgan Stanley, Goldman Sachs, and Citigroup have collectively expressed optimism about the upside potential and allocation value of Chinese stocks. Morgan Stanley and Citigroup have both raised their target points for the CSI 300 Index.

Foreign Investment Banks Expect CSI 300 Index

to Have 15% Upside Potential

Recently, several foreign investment banks have voiced their optimism about the value of Chinese asset allocation.

Goldman Sachs, in its latest report, raised its rating on the Chinese stock market to "overweight," raising the target point for the CSI 300 Index from 4000 points to 4600 points. In terms of industry allocation, Goldman Sachs has raised insurance and other financial sectors to "overweight," metals and mining to "neutral," and downgraded telecommunications services to "underweight."

Citigroup, in its latest report, also raised the target point for the CSI 300 Index to 4600 points and set a year-end target of 4900 points. Citigroup has upgraded its rating on Chinese consumer stocks from "neutral" to "buy," upgraded its rating on Chinese real estate stocks from "sell" to "neutral," and maintained an "overweight" rating on Chinese internet stocks.

According to Wind data, as of now, the CSI 300 Index is at 4017.85 points. This means that both Goldman Sachs and Citigroup believe that the CSI 300 Index still has approximately 15% upside potential.

Prior to this, the world's largest asset management company BlackRock had raised its tactical asset allocation for China from "neutral" to "moderately overweight." The institution believes that given the discount of Chinese stocks relative to developed market stocks is close to record levels, and there are catalysts that could stimulate investors to re-enter the market, there is still room for moderate increase in holding Chinese stocks in the short term.

Bullish Funds Flowing into Chinese Stocks

According to foreign investment banks, global funds are accelerating their inflow into Chinese stocks.

Bank of America Securities admitted that a bull market like the one in 2014-2015 in A-shares is not impossible. Before the bull market started in 2014, residents' savings increased by 15 trillion yuan. Before this round of market rebound, residents' savings had increased by 40 trillion yuan. In other words, there is more waiting capital to enter the market.

Morgan Stanley analysts led by Chiyao Huang recently released a research report pointing out that new retail investors are the main driving force behind the stock market's rise. The number of new investors opening accounts has significantly increased, indicating a rising participation of retail investors. The Chiyao Huang team predicts that if retail investors continue to maintain optimistic sentiment, as much as 2-3 trillion yuan of funds from Chinese household financial assets will be reallocated to the stock market, benefiting brokerage stocks. In addition, the relatively low balance of margin financing currently also indicates room for future growth.

In fact, looking at the performance of overseas Chinese assets during the National Day holiday, foreign funds are not only bullish on Chinese assets but also actively investing in them.

According to Wind and Bloomberg data, since October 1st, in the U.S. stock market, the Nasdaq Golden Dragon China Index has risen by 11.35%, while the iShares China Large-Cap ETF (FXI) and the iShares MSCI China ETF (MCHI) have risen by 12.37% and 11.96% respectively; in the Hong Kong stock market, the CSOP STAR 50 ETF and the BOSERA STAR50 ETF have risen by 48.71% and 124.27% respectively; In the Japanese market, the China Southern CSI 500 ETF has accumulated a rise of over 2021%.

It is worth mentioning that on October 3rd, Eastern Time, a China Dragon ETF tracking the performance of large Chinese technology companies debuted on the US stock market. This ETF aims to track 5 to 10 of the largest and most innovative Chinese technology companies. According to Wind data, the China Dragon ETF has risen by 2.56% over its first two trading days.

The issuer, Roundhill Investments, stated that the China Dragon ETF is the first ETF ever to accurately benchmark leading Chinese technology companies, making it a forward-looking strategic tool. Industry insiders view this as an important indication of foreign capital turning its investment focus towards Chinese assets.

Source: China Securities Journal