Goldman Sachs Targets China’s H-Shares to Rise 17% Amid Monetary Easing

Chinese stocks listed in Hong Kong may rise about 17 percent by the end of the year as China’s government relaxes monetary policies, according to Goldman Sachs Group Inc. (GS)

The Hang Seng China Enterprises Index (HSCEI) of so-called H shares may reach 12,200 by Dec. 31, compared with yesterday’s close of 10,413.61, Helen Zhu, a Goldman Sachs strategist, said in a Bloomberg Television interview today. The gauge advanced 0.8 percent to 10,500.34 as of 3:17 p.m. local time. Hong Kong’s benchmark Hang Seng Index (HSI) may reach 22,000, Zhu said. The gauge settled yesterday at 19,004.28.

The H-share index has risen 5.6 percent this year, while the Shanghai Composite Index advanced 3.5 percent after a weekend central bank report showed new bank lending and money supply exceeded economist estimates in December.

The data prompted investors to think that “the government may have moved very preemptively,” Zhu said. China may reduce the amount banks have to keep in reserve in the first half of the year and any cut in interest rates would likely happen in the second half, she said.

The People’s Bank of China cut banks’ reserve-requirement ratios from a record high for the first time in three years on Nov. 30. Expectations for more monetary easing escalated after inflation cooled to the slowest pace in 14 months in November and industrial output growth weakened. Import growth fell to a two-year low in December, data yesterday showed.

The Shanghai and H-share indexes tumbled 22 percent last year after the PBOC raised interest rates and reserve requirement ratios to combat rising prices. Data due tomorrow may show inflation slowed to 4 percent in December, the lowest level since September 2010, according to the median estimate in a Bloomberg economist survey.

CLSA Asia-Pacific Markets has turned cautious on China’s stocks because of “downside risk” to the economy from slumping property prices. The CSI 300 Index may rise to 2,600 in the first half of this year while earnings growth may slow to 5 percent compared with the consensus estimate of 19 percent, Manop Sangiambut, CLSA’s head of China A-share research, said in a report dated yesterday.

The central bank may undertake “reactive” policy loosening rather than “proactive,” he said. The CSI 300 index (SHSZ300), the 300 most valuable companies trading in the Shanghai and Shenzhen exchanges, retreated 0.5 percent today to 2,435.61.

New bank lending totaled 640.5 billion yuan ($101 billion) in December, according to a statement posted on the PBOC’s website on Jan. 8. The amount exceeded the 575 billion yuan median estimate of 18 economists surveyed by Bloomberg. M2, a measure of money supply, rose 13.6 percent, compared with the 12.9 percent median of 18 estimates.

To contact the reporters on this story: Weiyi Lim in Singapore at [email protected]; Susan Li in Hong Kong at [email protected]

To contact the editor responsible for this story: Darren Boey at [email protected]