(Yicai) July 10 -- Standard Chartered, Goldman Sachs and other international investment banks have recently reaffirmed their bullish stance on Chinese equities, despite heightened volatility in China’s stock market since the beginning of the month.

The Shanghai Composite Index, which reached a monthly high of 4,143.31 on July 1, tumbled to 3,938.88 yesterday, its lowest level so far this month. The Shenzhen Component Index dropped from its highest point this month of 16,332.48 on July 1 to its lowest point at 14,781.24 yesterday, while Shenzhen’s ChiNext Index slumped from 4,361.83 to 3,812.66 over the same period.

Despite the turmoil, Standard Chartered recently upgraded Chinese stocks to overweight, citing the market’s attractive valuations relative to other major global markets. The UK lender also highlighted the continued leadership of the technology sector, which it views as the primary growth engine of mainland stocks.

Goldman Sachs also maintains an overweight recommendation on Chinese stocks and is optimistic about artificial intelligence-related investments and the stocks of companies “going global,” the New York-based lender said.

“Feedback from our recent global investor roadshows indicates that international investors’ interest in Chinese stocks is heating up, and we expect a gradual reallocation of capital into the market in the coming months,” Wang Ying, chief China equity strategist at US financial services firm Morgan Stanley, said in a research report released yesterday.

UBS has observed that multiple funds are expected to flow into the Chinese stock market, including household savings shifting into investments, margin financing and short selling, private equity funds and exchange-traded funds. “Overseas investors will gradually return to the Chinese equity market,” said Meng Lei, China equity strategist at the Swiss banking giant’s China brokerage UBS Securities.

Some foreign investors believe that the mainland stock market is increasingly demonstrating its competitive edge in the hard technology field. “Last year, Hong Kong equities outperformed mainland stocks, but the situation has completely reversed this year,” Yao Yuan, senior investment strategist for Asia at Amundi Asset Management’s investment research institute, told Yicai.

“Chinese mainland stocks’ unique strengths in hard technology have been the key driver of its outperformance over Hong Kong stocks during the first half,” he added.

AI Appeal

In terms of investment themes, AI remains the most popular subject among international institutions.

Standard Chartered expects AI to remain the most favored investment target, with the technology sector continuing to lead the growth of the mainland stock market. The London-based bank believes the AI value chain will continue to benefit from strong industry momentum and forecasts that the earnings cycle of the mainland stock market is bottoming out and beginning to recover.

The net profit growth rate of non-financial firms listed on the mainland is likely to be about 10 percent this year, while that of the AI industry chain is expected to be 71 percent this year and 47 percent next year, significantly outperforming both the broader market and the CSI 300 Index, which is a benchmark of the Shenzhen and Shanghai bourses, Standard Chartered said.

Editor: Kim Taylor