File photo shows an exterior view of the Shanghai Stock Exchange at Pudong New Area in Shanghai, east China. (Xinhua)
BEIJING, Dec. 5 (Xinhua) -- Under the background of China's economic recovery and corporate earnings growth, coupled with net capital inflows from individual investors and other favorable factors, foreign financial institutions such as Goldman Sachs, UBS and J.P. Morgan continue to recommend a "high allocation" to the A-share market in 2025, the Xinhua-run Shanghai Securities News reported on Monday.
Foreign institutions forecast sustained sound growth in China's economic fundamentals and an increase in corporate profit margins in the future, which will lead to a wealth of investment opportunities in the country's stock market.
-- "High allocation" to A-shares
Goldman Sachs recommended a "high allocation" to the A-share market next year in its capital market outlook for 2025 recently released. Driven by earnings per share growth and valuation factors, the MSCI China Index is expected to rise by 15 percent in 2025 and the CSI 300 Index to rise by 13 percent, the investment bank said.
J. P. Morgan Asset Management forecast an average annual return of 7.8 percent for Chinese equities over the next 10 to 15 years. It also predicted a rise in Chinese companies' profit margins in the future.
Luca Paolini, chief strategist at Swiss-based Pictet Asset Management, upgraded the rating on Chinese stocks from neutral to overweight. He expected further gains in Chinese stocks in the coming months, saying valuations of A-shares remain attractive given their total market cap to money supply ratio stands at a 20-year low.
Bank of America's global fund manager survey for October revealed investor optimism about China, with 14 percent of the respondents saying "long China equities" are the most crowded trades.
-- Bullish sentiment on Chinese economy
An important factor for foreign investors' optimism about the A-share market is a promising prospect for the Chinese economy.
Many foreign financial institutions projected sustained sound growth in China's economy, for the major three drivers for economic growth, namely consumption, investment and exports, are expected to maintain steady growth or remain relatively stable.
Goldman Sachs's chief China economist Shan Hui said China's exports would be relatively stable in 2025, while consumption, especially commodity consumption, would show good performance. Moreover, as local government debt reduction accelerates to ease local financing pressure and enable fiscal expansion, government investment and consumption are likely to increase at a faster pace.
J.P. Morgan Asset Management, UBS and other foreign institutions are also optimistic about the important role of consumption in driving China's economic growth.
Zhu Chaoping, senior global market strategist at J.P. Morgan Asset Management, said with China's fiscal policies continuing to achieve good results, production recovery and consumer demands will boost the country's economic recovery, and the A-share market is likely to enter a stage of value regression based on corporate performance.
Wang Tao, head of Asia economic research at UBS Investment Bank, stated that the Chinese government may step up policy support to boost domestic consumption and implement more structural reforms in 2025.
-- Package of favorable policies
China has adopted a slew of policies to steadily promote institutional opening up of the capital market and further facilitate cross-border investment and financing. These policies also fire up foreign financial institutions' confidence in A-shares.
Stable and predictable policies will significantly enhance the appeal of Chinese assets. "We are encouraged by China's commitment to stabilizing the economy and promoting growth." said Dilhan Pillay Sandrasegara, executive director and CEO of Temasek Holdings, adding that capital market reform policies, including the new guidelines on strengthening supervision and preventing risks to boost high-quality development of the capital market, have firmed up investor confidence and are conducive to the sound development of the capital market.
Financial insiders hope relevant departments to introduce more practical measures for further facilitating cross-border investment and financing so as to attract more foreign institutions to invest in China.
"Currently, the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect schemes have basically met the needs of overseas investors in stock-related products. We look forward to more diversified asset classes, including bonds, futures, and options," said Fang Dongming, head of China at UBS Global Financial Markets.
The Hong Kong Monetary Authority (HKMA) is working with the regulators in the Chinese mainland to explore the promotion of opening up domestic bond repurchase business, hoping to further enrich Hong Kong's financial market. In the future, the HKMA will further develop and expand the Stock Connect schemes, and advance renminbi internationalization and the building of an offshore renminbi business ecosystem, said Eddie Yue, chief executive of the HKMA.
(Edited by Su Dan with Xinhua Silk Road, sudan@xinhua.org)
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