Chinese Shares Are a 'Buy' as GDP Should Grow by 7.5% in 2021, Goldman Sachs Says
Xu Yanyan
DATE:  Nov 26 2020
/ SOURCE:  Yicai
Chinese Shares Are a 'Buy' as GDP Should Grow by 7.5% in 2021, Goldman Sachs Says Chinese Shares Are a 'Buy' as GDP Should Grow by 7.5% in 2021, Goldman Sachs Says

(Yicai Global) Nov. 26 -- Investors should maintain high exposure to mainland-listed equities as the Chinese economy is expected to accelerate its expansion after the Covid-19-hit 2020, according to Goldman Sachs.

China's economy should expand by 7.5 percent in 2021, 1.4 percentage points higher than in 2019, spurred by a shift from exports and investment to domestic consumption, the US investment bank said during a press conference yesterday.

The growth forecast is actually conservative. The International Monetary Fund predicts that the Chinese economy will expand by 8.2 percent in 2021 and 1.9 percent in 2020. But what some may not have priced in is that China's policy support will return to normal with less stimulus after the pandemic-hit year, according to Managing Director Shan Hui.

The financial institution encourages investors to purchase mainland-listed and Hong Kong-listed shares, as the markets are expected to grow by 16 percent each in 2021. Particularly the fields of consumer durables, media, pharmaceuticals, transportation and retail should be strong, it added. Those who invest in the local currency could also enjoy the yuan's expected appreciation.

Goldman Sachs is quite bullish about the Chinese yuan's foreign exchange rate, expecting the redback to hit 6.30 against the US dollar in 12 months. The reasons are diverse. First, the economic fundamentals are supportive. Secondly, China has higher interest rates than other economies, which attracts foreign investors. That is further underlined by international bond index inclusions. Moreover, China's central bank has committed to promoting interest rate liberalization.

Another currency may affect the yuan. The US Dollar Index will depreciate by 6 percent next year, Goldman Sachs said. As the dollar loses value, the yuan appreciates, even if remaining flat against other currencies.

Consumption is a key driver of growth. This year's pandemic limited consumption and led to an increase in savings, according to Shan. But as the labor market is recovering gradually, higher incomes will lead to rising spending, Shan added.

China's household consumption will rebound significantly next year, up 13 percent from a year earlier, compared to a 4 percent decline predicted for 2020, according to the New York-headquartered lender.

The bank made some macroeconomic predictions too. China's fiscal deficit will fall to 3 percent of its gross domestic product next year from a 3.6 percent rate in 2020, it suggested. There should be no more than CNY1 trillion (USD152.1 billion) in special government debt next year.

China's interest rates will remain stable in 2021, with moderate credit level growth, the bank said. Meanwhile, the macro-leverage ratio -- the rate between a country's aggregate debts and its GDP -- will rise by 5 percent after jumping 25 percentage points to 30 percent in 2020, it added.

Editor: Xu Wei, Emmi Laine

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Keywords:   Goldman Sachs,Share,CNY