Goldman Sachs upgraded China to overweight in a bullish note released today.
Analyst Helen Zhu points to diminishing inflation pressure as a sign that economic tightening is coming to an end. Beijing will also seek to boost growth that has declined faster than expected.
Looser policy typically leads to a bull market. Goldman forecasts 28% gains in the Hang Seng by year-end.
But there are risks, including an oil spike: “While we think the macro, valuation and positioning context warrants a positive market stance, the coast is not completely clear. The domestic macro cycle has not yet turned, and global risks, such as MENA political unrest and a potential oil price spike, abound. Our timing may be early, and the market’s relative performance could be better than its absolute returns in the near term.