Goldman Sachs Group Inc. has recently made significant adjustments to its ratings in Asian markets, with a notable downgrade on Hong Kong-traded Chinese stocks and a simultaneous upgrade for Indian equities. The decision is driven by varying factors, including low earnings growth in China and the strategic appeal of the Indian market.
Downgrade on Chinese Stocks
Goldman Sachs has lowered its rating on Hong Kong-listed Chinese companies, citing concerns over low earnings growth and the potential for a consensus downgrade. The decision reflects the bank’s reservations about the current state of the Chinese stock market.
Market-Weight for Chinese Companies
The investment bank has moved Hong Kong-listed Chinese companies to a market-weight rating, indicating a more neutral stance. This decision is rooted in the belief that, given the prevailing valuations, earnings will be the primary driver of returns in the Asian markets.
Multiple Downgrades on China Equities
Goldman Sachs has consistently downgraded its views on China equities throughout the year, reflecting a sense of pessimism in the country’s stock market. In a notable move in August, the bank reduced the full-year earnings-per-share growth estimate for the MSCI China Index and adjusted the 12-month index target.
Remained Overweight on Chinese Onshore Shares
Despite the downgrades, Goldman Sachs maintains an overweight position on Chinese onshore shares. The bank identifies opportunities in sectors related to China’s strategic shift toward higher productivity and greater self-sufficiency, such as artificial intelligence and new infrastructure.
Structural Challenges in China
Goldman Sachs acknowledges the structural challenges facing China, including a housing sector downturn, high debt levels, and adverse demographics. However, the bank believes that opportunities in onshore markets, particularly in sectors with “alpha” potential, can counterbalance these challenges.
Upgrade for Indian Equities
Positive Outlook for India
Goldman Sachs has upgraded its rating on Indian equities, citing the market’s strategic appeal. The bank anticipates that India will experience the best structural growth prospects in the region, with mid-teens earnings growth expected over the next two years.
Domestically Driven Growth
The strategic appeal of the Indian market lies in its largely domestically driven growth. Goldman Sachs identifies various alpha-generating themes for investors, including the ‘make-in-India’ initiative, large-cap compounders, and mid-cap multibaggers.
Investment Opportunities in India
The bank sees India as offering a wide array of investment opportunities, driven by its structural growth prospects. The focus on domestic growth adds resilience to the market, potentially making it an attractive destination for investors seeking exposure to emerging markets.
Optimism in Indian Market
Goldman Sachs expresses optimism about the Indian market’s potential for alpha generation, emphasizing the positive trajectory of mid-teens earnings growth. This positive outlook contrasts with the bank’s more cautious stance on certain aspects of the Chinese market.