Will China’s comeback stock rally last? Wall Street weighs in and shares stock picks
China stocks have staged such a strong rally after a protracted slump for the past few years that they’re beating even the S & P 500 so far this year. The MSCI China index, which includes the mainland A-shares, Hong Kong-listed shares and U.S.-listed China names, has jumped around 9%, while the KraneShares CSI China Internet ETF is up around 13%. The S & P 500 has risen around 8%. That breakout has come after a deep and lengthy decline in Chinese markets, as they lost nearly $5 trillion in three years . Investors were bearish as a result of the property debt crisis, slowing growth and other factors. But is the bounce back sustainable? Here’s what Wall Street and other analysts say, and what to buy in the market. China policy a big factor Bernstein said in a May 3 note: “Chinese market has seen one of the most silent bull [cycles]; MSCI China up 19% since Jan bottom despite skeptical investors. With rebounding strength in recent weeks, many investors question if this rally can continue or is it already time to take profit.” It believes there’s “more room” for the China rebound — largely through growth stocks. But it also advised that hedging through momentum — selectively — is important. The momentum strategy is one in which investors buy stocks that are rising but sell when they appear to have hit the peak. Most analysts said whether the rally can be sustained will largely depend on China policy. In a May 3 note, BNP Paribas said it’s increasing its MSCI China target “to the bullish scenario” to have another 10% to 15% upside. It cited the April statement by China’s Politburo — the gathering of top Chinese leaders — that focused on a stronger commitment to pro-growth and pro-reform policy. “We see the current uneven recovery broadening to benefit capable leaders across sectors that have yet to participate or fully participate in the ongoing rally,” said JPMorgan in a May 3 note, adding that a segment of property buyers who wish to upgrade will lend support to this sector till 2026 to 2027. Goldman Sachs said in an April 23 note that its analysis suggested that China’s A-shares could jump around 20% — if China can “narrow the gap” with the international average in terms of shareholder returns, corporate government standards and institutional investor ownership. The Wall Street bank also cited the Asian giant’s policy focus in 2024, which has shifted to a focus on promoting high-quality development of its markets. “More direct and to-the-point fiscal stimulus measures targeting the demand side are key in keeping the rally going forward,” Kevin Liu of CICC Research told CNBC last week. Risk factors to consider include when policies will be rolled out, and how quickly the economy, property sector and earnings can recover, according to Nomura’s May 5 report. Still, the bank believes that the Politburo event is “clearly positive” for stocks. “We think underweight investors are likely to be forced to chase the rally,” the bank’s analysts said, adding that beaten-down cyclical recovery stocks are likely to outperform. How to play China Though most were bullish on China stocks, they would be selective in stock-picking. Goldman built a screen of what it called “large-cap stable growers” that included these characteristics: High historical earnings growth rates but low realized earnings growth volatility. A healthy balance sheet — defined by a low net-debt-to-equity ratio. A track record of returning cash to shareholders. The stocks with market capitalizations of more than $10 billion that showed up included: BYD, SAIC Motor , Changan Automobile , Longi Green Energy and Anhui Conch Cement . JPMorgan named 14 stock picks from a few main themes, including “high yielders” (utilities) and growth picks (artificial intelligence and electric vehicle batteries). There are also names that can benefit from improving housing transactions, broadening economic activities (advertising and trucking) and consumption (liquor, smartphones). The bank described them as “well positioned to catch up,” and they include: Kweichow Moutai, CATL, Kuaishou Technology , Ping An Insurance , China Merchants Bank and JD.com . Of the list, JPMorgan gave Ping An the highest potential upside to the price target of 77 Hong Kong dollars ($9.85) — at 102.6% as of May 3. U.S. and other investors who wish to invest in China via exchange-traded funds can consider the following, which Morningstar gave ratings of bronze to gold and overall fund ratings of three to five stars. They include: SPDR S & P China ETF iShares MSCI China A ETF Global X MSCI China Consumer Disc ETF iShares MSCI Hong Kong ETF — CNBC’s Michael Bloom contributed to this report.
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