April 21, 2024

Chinese Stocks Might Miss Boost from Party Congress – Goldman Sachs

The Congress of the Chinese Communist Party holds twice in ten years. It usually gives a pump to the country’s stock market in a way when it is about to come up. But Goldman Sachs’ latest report says the boost might not come this time as a result of COVID regulations, as well as the decline in the property market, which both put pressure on the Chinese economy.

Stocks Fall Short

Historically, the growth momentum in the Chinese economy gets strong during this period while a major political event is ahead. But economic strategists, that include Kinger Lau, have written that is not certain if the usual precedents are going to be valid now. Goldman Sachs says it expects that the Zero COVID rule in China might be in place till Q2 of 2023.

Typically, the MSCI index would generate some 2% interest in the months leading up to the Communist Party’s Congress. Certain sectors of consumer products would trade exceptionally well, according to the strategists in a note released on Sunday.

The MSCI index has now fallen by about 1.4% on Monday, as it sees over 8% loss so far this month. The poor performance of the Chinese stock market against regional and global benchmarks is made prominent by the resurgence of COVID in the country and instability in real estate.

There is a COVID Zero in place and economic growth hangs on it. Goldman Sachs says fiscal policies might bare most of the burden in order to deal with economic obstacles. 

Xi Might Get a Third Term

The note from Goldman Sachs’ economic strategists does not expect any radical shifts in policy dynamics after the Chinese Communist Party Congress. However, it points out that the confirmation of any specific changes could bring about some policy directions that would be better and would see more effective implementation.

It is speculated that the Chinese President, Xi Jinping, might get a third term during the congress. It is unprecedented for a Chinese President to serve three terms.

However, the review coming from Goldman Sachs exercises more caution than those of investors sampled in Bloomberg’s survey. Most of them envisage that the stocks in China would gain before the Party Congress and for up to six months after President Xi must have been confirmed for a third term, as all policy obstacles must have been done away with.

The Goldman Sachs strategists are of the opinion that shares of Chinese onshore companies have better positioning than those offshore since there are fewer foreign participants and lesser impact from foreign conditions.

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