Goldman Sachs Says China’s Hong Kong ‘H’ Shares ‘New Top Trade’
March 31, 2010, 6:03 PM EDT
April 1 (Bloomberg) -- China’s Hong Kong-listed companies are a “new top trade” at Goldman Sachs Group Inc., which said the Hang Seng China Enterprises Index will climb at least 20 percent on valuation and the outlook for economic growth.
“We are recommending a new top trade,” Dominic Wilson, an economist at Goldman Sachs in New York, wrote in a report e- mailed yesterday. “We sense that Chinese equities have fallen off investors’ radars somewhat, positioning is light, and sentiment is, at best, skeptical, making us all the more keen to get involved.”
The recommendation is Goldman Sachs’s ninth top trade for the year. The other top trades include owning Russian stocks, favoring the British pound against the New Zealand dollar, and the Polish zloty against the Japanese yen, according to a separate note e-mailed yesterday.
The H-share index has dropped 10 percent from a 17-month high in November, compared with a 2.8 percent gain for the MSCI Emerging Markets Index, on concern policy makers will curb bank lending and raise interest rates to slow growth. The H-share index’s 3.1 percent loss this year compares to a 4.9 percent gain in the Standard & Poor’s 500 Index of U.S. stocks and 2.1 percent advance in the MSCI Emerging Markets Index of 22 developing-nation stocks.
The “underperformance” of China’s H shares left their valuation at “undemanding” levels, Goldman Sachs said. The H- share index is priced at 17.8 times the reported earnings of its companies, an 11 percent discount to the MSCI Emerging Markets Index, according to data compiled by Bloomberg.
Goldman Sachs recommended a “long position” in H shares as the index that tracks their performance rises to 15,000 from 12,397.59 yesterday. China’s economy, the third largest in the world, will expand more than 11 percent this year, Goldman Sachs predicts, more than the 9.6 percent median forecast of 22 analysts surveyed by Bloomberg. Goldman Sachs’s portfolio strategists predict the H shares index will climb to 17,000 by year-end, a 37 percent jump from yesterday’s close.
“Economic growth has stayed robust and broad based,” Goldman Sachs wrote. “While interest rates will likely rise soon,” the risk from policy tightening “is much better flagged than before.”
--Editors: Eric Martin, Lester Pimentel
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