New Delhi: According to the analysts at Goldman Sachs as reported by Reuters, the stocks in Hong Kong are cheap but they can miss out on the benefits of the economic support provided by China. On the other hand, Morgan Stanley has warned that tensions and tariffs could hurt, as both brokerages downgraded market forecasts. Goldman Sachs came down a notch in its recommendation on Hong Kong shares from “market weight” to “underweight”.
On the other hand, Morgan Stanley earlier kept China in ‘equal weight’ but it has downgraded it to slight “underweight” in emerging markets. Analysts are noting that the efforts to resurrect the economy and the Republicans sweeping the Congress and the White House in the United States could impact markets significantly.
As per the analysts at Morgan Stanley, as reported by Reuters, they expect even stronger headwinds on corporate earnings and market valuation in the coming months. The base-case target by Morgan Stanley for China’s CSI300 is 4,200 by the end of 2025. It is around 4.7 per cent above the 4,011 level which traded earlier in the day. It has projected the Hang Seng at 19,400, which is below Monday’s level of 19,655.
According to the Reuters report, Goldman Sachs has been more bullish on mainland stocks and it has set a 2025 target on the CSI300 at 4,600. However, it expects on the MSCI Hong Kong index weakness of Hong Kong companies. Goldman analysts said in an Asia-Pacific portfolio strategy note that while there are no demanding valuations, Hong Kong does not have much to offer in terms of economic or earnings growth. They also said that the pressure is on the property and retail sector and the economy will possibly not benefit as much from China’s policy support as in previous times since China is focusing on bolstering the domestic economy.
As per both the US banks, the yuan can weaken in the coming days. While Goldman has forecasted a dollar/yuan exchange rate of 7.5 at the end of next year, Morgan Stanley has placed it at 7.6. On Monday, the yuan traded at 7.2371 per dollar. According to both brokerages, it is better to invest in mainland shares over the ones listed in Hong Kong as the mainland market can be less affected by global sentiment or currency fluctuations.
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