To The Moon

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#Goldman Sachs& Morgan Stanley China 2023 Outlook

1. Investment banks are bullish on China economic and stocks market in 2023

2022 is a challenging year for global investors. The risk of recession casts a dark shadow over the US, which remains deeply polarized. The eurozone is facing a deep recession, Japan's economy is shrinking, and the United Kingdom is struggling with the worst fall in living standards since records began.

looking into China, The impact of the new round of COVID-19 pandemic continues, under the restrictive policy, many areas are getting slower. Looking back on the past year, the words of "continuous decline" and "losing confidence" were the keywords to describe Chinese and HK stocks.

With 2022 coming to an end, will 2023 usher in a breakthrough or an expectant year?

Recently, the voices from some investment banks seems to be exciting: almost all investment banks are strongly bullish on the Chinese market in 2023.

Goldman Sachs: China's market has accelerated its GDP growth and RMB appreciation recently,We are optimistic about Chinese stocks in 2023, those high-quality enterprises will bring higher returns.

Morgan Stanley: The outlook for Chinese stocks is expected to improve in 2023. It is expected that there will be absolute room for growth in the next 12 months. A few industries, such as green energy and consumer goods, will perform well.

Bank of America: China's stock market has a high level of 'excess savings', which is still in the stage of bullish against the trend, so it is suitable to long China's stock market ETFs

2. Why are major institutions optimistic about China's market in 2023?

There are three main reasons:

First Reason is the Chinese stocks price are at the bottom. In the first 10 months of 2022, China stock market fell nearly 30%, and investment banks said that the stock valuation was low and the price was at the bottom, which was a good time to bargain. Morgan Stanley shared in report that the "potential positive results" of the US inspection of the audit papers of Chinese listed companies in the US will show positive effect to Chinese stocks.

Look at some Chinese investing related ETFs: $KWEB(KWEB)$ $FTSE China Bull 3X Shares(YINN)$ $ProShares Ultra FTSE China 50(XPP)$ $FTSE China H50 Index - main 2212(FCHmain)$ $iShares MSCI China ETF(02801)$ $MCHI(MCHI)$ $FXI(FXI)$$Direxion Daily CSI 300 China A Share Bull 2X Shares(CHAU)$

The second reason is about China’s upcoming reopening after pandemic since 2019.

Goldman Sachs believes that the probability of China's reopening in Q2 in 2023 is 60%, and that there is a 30% chance of early exit and dynamic reset. Other experts predict that the pace of opening up will earlier than March.

Morgan Stanley analysts pointed out that some recent events are developing in a positive direction, such as easing the anti-pandemic policy, new support for the real estate market, expectations for the strengthening of the RMB,

Thirdly, China's economy is facing extensive recovery.

Goldman Sachs believes that with the relaxation of pandemic prevention policy and the improvement of supply chain, China's economy will achieve strong growth in the second half of next year, which will generate a powerful "cyclical driving force", enen in the first half of 2023 may be lower than the market expectation. On the whole, it is expected that China's annual GDP growth will accelerate from 3.0% in 2022 to 4.5% in 2023.

In addition, thanks to the broad recovery of economic growth and the potential improvement of employment demand, Goldman Sachs forecasts the unemployment rate of China at the end of 2023 will lower to be 5.0%. Goldman Sachs also expects that the acceleration of China's overall CPI and core CPI inflation will remain moderate with increase by 1.2% by 2023; The RMB will rebound against the US dollar$USD Index(USDindex.FOREX)$ and appreciate moderately.

3. It seems that China's economic situation will be very good in 2023. How can you benefit from long China?

Goldman Sachs gave some specific directions: given that the current valuation of China's stock market and bond market is still at an undervalued level, especially cyclical, consumer stocks, and investment grade real estate bonds, have a huge space for cyclical rebound.

• Goldman Sachs proposes to vigorously increase holdings of high-quality state-owned enterprises, which may bring higher returns under the impetus of favorable exposure of long-term policies and development trends.
• Goldman Sachs is also interested in China's technology, media, communications (TMT) and Chinese real estate sectors.
• What's more, Goldman Sachs is more optimistic about Macao's gambling industry's high returns. Gambling stocks are currently at a low historical price, and the enterprise valuation is low. As the macro uncertainty recedes in the late 2023, the valuation will become a more meaningful driver.

Morgan Stanley also gave three directions for the industry and individual stocks to be expected.

Firstly, the industries that directly benefit from China's "top-down policy dividend" are the most attractive, such as high-end manufacturing, information technology and automation industries.

The above industries are in line with the national strategic development plan of the Chinese government. For like $NIO Inc.(NIO)$ ,$BYD Co., Ltd.(BYDDY)$ $BYD COMPANY(01211)$ $XPeng Inc.(XPEV)$ and etc are the potential biggest beneficiaries of policy.

Secondly, individual stocks in the green energy industry will also perform well.

Based on the Chinese government's goal of reducing carbon emissions, "green economy" companies such as manufacturers of solar glass and wind turbines will enjoy the highest level of policy support. In view of the efforts of global cooperation to address climate change, these companies will "not be too sensitive to geopolitical tensions" in 2023. Companies may benefit: $XINYI ENERGY(03868)$ $XINYI GLASS(00868)$ $FLAT GLASS(06865)$.

Thirdly, another key transaction theme is the non essential consumer goods and services industry.

The non essential consumer goods and services industry will become the main beneficiaries of China's relaxation of the dynamic zero clearing policy. Such as online e-commerce, $Alibaba(BABA)$ $JD.com(JD)$ $Pinduoduo Inc.(PDD)$ ,$Vipshop(VIPS)$ , $MINISO Group Holding Limited(MNSO)$ EV industry: $NIO Inc.(NIO)$ $XPeng Inc.(XPEV)$，$Li Auto(LI)$ ……

What do you think of China's economy in 2023？

What Chinese stocks do you want to invest in 2023?

Welcome to discuss in the comment area~

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