Positive News: Announced Increase!

Market Sentiment Improves!

Last weekend, the policy stance of the Ministry of Finance exceeded the expectations of many analysts. Today (October 14th), the A-share market saw a widespread rally, with the three major indices all rising by more than 2%, and the number of stocks that increased exceeded 5,000.

At the same time, Chinese assets have received several pieces of positive news. Goldman Sachs raised its forecast for China's real GDP for 2024 and 2025, increasing the forecast for China's real GDP growth in 2024 from 4.7% to 4.9%. UBS's Head of Asian Economic Research and Chief China Economist, Tao Wang, also stated that the two forward-looking guidelines from the Ministry of Finance are conducive to boosting market confidence and stabilizing economic growth. This includes a one-time increase in the debt limit to replace the existing implicit debt of local governments on a larger scale, as well as supporting local governments in using special bonds to stabilize real estate activities.

In addition, several internationally renowned investment banks are intensively raising their target prices for Chinese assets. Among them, UBS raised its target price for Tencent to HKD 580 per share, Bank of America raised its target price for BYD to HKD 340 per share, J.P. Morgan raised its target price for Anta to HKD 144 per share, and Goldman Sachs raised its target price for HKEX to HKD 397 per share.

Upgrading China's GDP Forecast

On October 13th, Goldman Sachs Group upgraded its forecast for China's real GDP for 2024 and 2025, following the announcement of a series of measures to boost growth, including the public expenditure plan announced over the weekend.

Goldman Sachs expects China's real GDP to grow by 4.9% in 2024, higher than the previously forecasted 4.7%, and the group also raised its growth forecast for 2025 from 4.3% to 4.7%. Economists at Goldman Sachs Group, including Hui Shan and Lisheng Wang, wrote: "China's latest round of economic stimulus measures clearly indicate a shift in policy makers' focus on cyclical policy management, paying more attention to the economy."

As Goldman Sachs Group upgraded its forecast, economists and investors are assessing the potential impact of the stimulus measures taken by the Chinese government since late September to boost the economy. At a press conference last Saturday, the Chinese government pledged to increase fiscal support. According to a report from Goldman Sachs, officials from China's Ministry of Finance stated that 2.3 trillion yuan of local government special bond funds will be used in the fourth quarter, implying that the public expenditure plan will be more significant, and the rebound in economic growth will also exceed the bank's previous expectations.

Furthermore, the National Development and Reform Commission stated last week that it will pre-approve investment projects worth 200 billion yuan for next year by the end of this month. Goldman Sachs Group stated that this is an effort to achieve this year's GDP growth target of "around 5%". The report said that the announced and implied easing measures will contribute an additional 0.4 percentage points to next year's economic growth.

Last weekend, the Ministry of Finance detailed the much-anticipated fiscal support policy framework at a press conference. UBS's Head of Asian Economic Research and Chief China Economist, Tao Wang, interpreted that these policy guidelines cover most of the directions that need to be strengthened. Although there is less mention of policies to support residents' income and consumption, there is still hope that they will be gradually introduced in the future.Wang Tao emphasized that the Ministry of Finance's two forward-looking guidelines are conducive to boosting market confidence and stabilizing economic growth. This includes a one-time increase in a larger scale debt limit to replace local governments' existing implicit debt, as well as supporting local governments in using special bonds to stabilize real estate activities, including promoting inventory reduction. In addition, the Ministry of Finance has clearly stated that there is significant room for central finance in terms of debt issuance and deficit increase, indicating that if necessary in the future, the fiscal deficit ratio can be raised and more incremental fiscal stimulus policies can be introduced.

Wang Tao pointed out that important policy timelines in the future include the release of third-quarter economic data around October 18th, the possible convening of the Standing Committee of the National People's Congress at the end of October to approve the government's fiscal policy plan, and the Central Economic Work Conference held in mid-to-late December 2024, which will discuss the economic growth targets and specific policy measures for 2025. Wang Tao said that after the government announces more specific scales and natures of real estate and fiscal policy support, he will reassess the forecasts for economic growth and the real estate market in 2024 and 2025.

JPMorgan Asset Management believes that the Ministry of Finance's press conference conveyed the positive side of the Chinese government's fiscal policy. In addition to the planned high-scale fiscal expenditure, it emphasized that there is still a large room for central finance in terms of debt issuance and deficit increase, reserving space for future fiscal policy reinforcement. Looking at specific policies, the support for debt resolution is relatively strong, combined with the annual regular special bond arrangement and the largest one-time replacement in recent years, especially described as a "timely rain," it can be expected that under the reduced pressure on local governments, there may be more resources to support economic development.

"Market sentiment has returned to hope, but it will also enter a wait-and-see mode, waiting for actual data and more details on consumption and real estate measures, which are currently lacking," said Xin-Yao Ng, Investment Director of Aberdeen Asia Limited. "The Chinese Ministry of Finance has done its best to fill the market with hopeful expectations."

Economists at HSBC Holdings, including Liu Jing, wrote in a report: "Although there are no large fiscal stimulus figures, the Ministry of Finance's press conference is still a pleasant surprise for us. The policy shift seems to be sustainable, and the increase in risk appetite will generate wealth effects in the stock and real estate markets."

Raise stock target prices

At present, investment banks are intensively raising the target prices of Chinese assets. Among them, UBS, in its latest report, raised the target price of Tencent Holdings to 580 Hong Kong dollars per share, with a clearer profit outlook.

UBS believes that for the third-quarter performance results this year, investors will pay more attention to forward-looking comments from Tencent's management, focusing on several aspects, including updates on the performance of major games, focusing on the performance of key games after the recovery in the first half of the year, as well as the prospects and sustainability after the strong debut of Dungeon and Fighter, advertising and financial technology and business services (FBS) demand outlook, profit recovery trend, and key growth drivers including artificial intelligence, WeChat e-commerce, and major games. The bank raised its target price for Tencent from 483 Hong Kong dollars per share to 580 Hong Kong dollars per share, equivalent to a dynamic price-to-earnings ratio of 1 times (previously valued at 0.8 times), reiterated a "buy" rating, indicating that the company's profit outlook has become clearer.

JPMorgan Chase also raised its target price for Tencent Holdings. JPMorgan Chase said that Tencent's profits are more driven by non-cyclical operations, but it believes that Tencent's non-cyclical operations will continue to deliver positive Alpha (referring to excess returns above the market average), especially in the gaming business. Tencent's cyclical operations will also benefit from consumption recovery in the future, similar to e-commerce platforms. The bank expects Tencent's online gaming revenue to rise by 15% and 27% year-on-year in the third and fourth quarters, respectively, compared to a 9% year-on-year increase in the second quarter, benefiting from a low base, strong game performance, and new game revenue contributions. In addition, the bank raised its adjusted earnings per share forecast for this year and next year by 3% and 6%, respectively, raising its target price from 480 Hong Kong dollars per share to 520 Hong Kong dollars per share, and maintaining a "buy" rating.

Citigroup is also optimistic about Tencent. Citigroup published a report, expecting Tencent to announce its third-quarter results in mid-November, which is expected to meet the bank's and market expectations, with gaming revenue likely to rise. The bank believes that the focus of the earnings conference call will be the management's comments on the macro environment, reflected in its payment transaction activities and advertisers' advertising expenditure sentiment, especially during the Double 11 promotion period, as well as the performance of flagship games and new game pipelines. The bank raised its target price from 535 Hong Kong dollars per share to 573 Hong Kong dollars per share, maintaining a "buy" rating and core holding status.UBS has also raised its target price for JD.com. UBS believes that JD.com is best positioned in the short term to capture potential macroeconomic stimulus factors, including appliance trade-in programs, real estate market measures, and consumer vouchers. In the medium term, JD.com may benefit from a continuous expansion of profit margins, including a more favorable product mix and scale enhancement; improved procurement efficiency; higher advertising and commission income from third-party businesses; and increased delivery efficiency for JD.com. UBS stated that JD.com's $5 billion repurchase plan may provide support for its shares and believes that JD.com has the greatest potential for profit surprises and multiple revaluations. UBS raised its target price for JD.com's US shares from $43 per share to $64 per share; the target price for H shares was raised from HKD 168 per share to HKD 250 per share, reiterating a "Buy" rating.

JPMorgan Chase has raised its target price for Anta. JPMorgan Chase released a report stating that due to the performance during the Golden Week, Anta is confident in the Double 11 event and the fourth quarter, believing that new stores and better same-store sales will drive performance above internal targets and outperform the industry. Additionally, the company indicated that if the fourth quarter's performance exceeds expectations, it can achieve this year's retail sales guidance. Furthermore, if the fourth quarter meets expectations with strict cost control, the company is also confident in maintaining the 2024 operating gross margin guidance. JPMorgan Chase raised its target price for Anta from HKD 141 per share to HKD 144 per share, maintaining an "Overweight" rating.

Goldman Sachs Group has raised its target price for Hong Kong Exchanges and Clearing to HKD 397 per share. Goldman Sachs Group pointed out that China's policy announcements focusing on improving economic and market prospects have brought record trading volumes to Hong Kong stocks. Despite this, the stock price of Hong Kong Exchanges and Clearing is still more than 40% lower than its high in 2021. In addition to the recent surge, the stock's earnings prospects and the Hong Kong Exchange's spot market reforms aimed at reducing the bid-ask spread next year will determine the trading volume for the years following. The bank emphasized that the risk-reward of Hong Kong Exchanges and Clearing remains attractive, believing that the bull market upside potential is greater than the bear market downside risk, raising the target price from HKD 318 per share to HKD 397 per share, with a "Buy" rating.