Chinese Stocks Poised for Limited Downside Despite Trade Tensions: Goldman Sachs

Despite escalating trade tensions between the US and China, Goldman Sachs remains optimistic about Chinese stocks in 2024, suggesting a limited downside for the market, as reported by Bloomberg.

The bank's China portfolio strategist, Si Fu, told Bloomberg TV on Monday that the market has already priced in the potential impact of US tariffs on Chinese imports, offering a buffer against further selloffs.

Fu noted that while Donald Trump's planned tariffs will undoubtedly affect corporate earnings, companies vulnerable to these risks have already experienced a valuation discount. This is evidenced by the decline in US investors' holdings in related Chinese firms.

Fu remains optimistic, citing expectations for concrete measures to stimulate consumption in China following weaker-than-expected retail sales growth in November. This, coupled with the potential for improved company fundamentals, suggests that current equity valuations are well-supported.

Goldman Sachs forecasts a healthy earnings growth trajectory for the MSCI China gauge, projecting a 7% increase in 2025 and a 10% expansion in 2026. This outlook is particularly encouraging considering the index's impressive performance this year, with a more than 15% surge putting it on track for its first annual gain in four years.

However, Fu acknowledges the potential for downside risk. In a scenario where the US imposes a significant 60% tariff hike on Chinese goods, she anticipates a 10% valuation decline from current levels.

Despite this potential risk, Goldman strategists remain focused on the potential for government intervention in 2024, including measures to bolster consumption through increased coupon issuance and subsidies.