Goldman Sachs Sees H-Shares Outperforming A-Shares as July Meeting Strengthens Easing Signal
The offshore China index MXCN rose 3.9% this week, while the A-share CSI 300 fell 1.3%.
The offshore China index MXCN rose 3.9% this week, while the A-share CSI 300 fell 1.3%. Goldman Sachs said the July Political Bureau meeting strengthened signals of policy easing, while China’s official manufacturing and nonmanufacturing purchasing managers’ indexes both declined.
CXMT completed its IPO on the STAR Market, becoming the largest company by market capitalization in the A-share market. Southbound Stock Connect recorded its largest weekly net outflow in five years, while hedge funds’ net China exposure fell to a level near a one-year low.
The market showed H-shares outperforming and A-shares lagging. Materials and value styles led, while information technology was the weakest sector.
Based on its A-H rotation model, Goldman Sachs highlights overweighting H-shares over the next three months and focusing on positive rating sectors including materials and capital goods. The note’s stated logic is that the Political Bureau meeting’s easing signals could improve policy expectations and give H-shares greater upside elasticity, while weaker PMI readings could increase earnings pressure and weigh on A-shares.
Goldman Sachs said market pricing for H-shares already reflects pessimistic expectations and that an opening for policy easing could drive a recovery. It identified potential trading implications including an positive rating position in H-shares, a focus on materials and capital-goods stocks, and a potential contrarian buying opportunity created by hedge funds’ low China exposure.
The note’s conclusion is that H-shares could outperform A-shares, supported by improving policy expectations and low positioning, and it highlights overweighting Hong Kong-listed stocks. It characterizes the outlook as positive for H-share indexes and the materials and capital-goods sectors, but negative for A-shares in the short term. The note also says that hedge funds’ net China exposure is near a one-year low, leaving substantial room for position covering if expectations improve, and that the potential impact of policy easing has not yet been priced in.
The catalysts identified are the details of any subsequent fiscal and monetary policy implementation, whether the August PMI stabilizes, and whether Southbound Stock Connect flows reverse.
CXMT completed its IPO on the STAR Market, becoming the largest company by market capitalization in the A-share market. Southbound Stock Connect recorded its largest weekly net outflow in five years, while hedge funds’ net China exposure fell to a level near a one-year low.
The market showed H-shares outperforming and A-shares lagging. Materials and value styles led, while information technology was the weakest sector.
Based on its A-H rotation model, Goldman Sachs highlights overweighting H-shares over the next three months and focusing on positive rating sectors including materials and capital goods. The note’s stated logic is that the Political Bureau meeting’s easing signals could improve policy expectations and give H-shares greater upside elasticity, while weaker PMI readings could increase earnings pressure and weigh on A-shares.
Goldman Sachs said market pricing for H-shares already reflects pessimistic expectations and that an opening for policy easing could drive a recovery. It identified potential trading implications including an positive rating position in H-shares, a focus on materials and capital-goods stocks, and a potential contrarian buying opportunity created by hedge funds’ low China exposure.
The note’s conclusion is that H-shares could outperform A-shares, supported by improving policy expectations and low positioning, and it highlights overweighting Hong Kong-listed stocks. It characterizes the outlook as positive for H-share indexes and the materials and capital-goods sectors, but negative for A-shares in the short term. The note also says that hedge funds’ net China exposure is near a one-year low, leaving substantial room for position covering if expectations improve, and that the potential impact of policy easing has not yet been priced in.
The catalysts identified are the details of any subsequent fiscal and monetary policy implementation, whether the August PMI stabilizes, and whether Southbound Stock Connect flows reverse.