Foreign optimism has surpassed expectations!

Goldman Sachs predicts that, supported by pro-market policies, profit growth, and robust capital flows, China's major stock indices could rise by 30% by the end of 2027. Strategists, including Kinger Lau, noted in a report on Wednesday that the Chinese stock market is entering a more stable upward trend, "shifting from hope to growth."

Meanwhile, Bank of America released a new consumer survey in China, stating that consumer spending remained strong in October. The bank found evidence suggesting that high-income consumers are recovering, driven by the wealth effect from the stock market. Membership stores are now the most favored grocery channel among consumers.

Is there still room for a 30% increase in the stock market?

According to reports this morning, Goldman Sachs anticipates that by the end of 2027, China's main stock indices will rise by 30%, thanks to pro-market policies, profit growth, and strong capital flows. The Chinese stock market is transitioning into a more stable upward trend, moving from "hope" to "growth."

After a recent AI-driven surge, the MSCI China Index is on track for its first monthly decline in six months. Investors are closely monitoring this month's heavyweight events for market guidance.

Goldman emphasized that further demand-side stimulus, AI-driven profit growth, and robust internal and external capital inflows are key drivers. Earnings are expected to grow by 12% over three years, while stock valuation multiples may increase by 5% to 10%. Although a cyclical slowdown in Q4 and the re-emergence of tariff risks could trigger profit-taking, strategists advise maintaining investments and buying on market dips unless these risks intensify.

Consumer Spending Boosted by Stock Market Recovery

Bank of America’s latest consumer survey highlighted that consumer spending in China remained robust in October. The bank found evidence that high-income consumers, buoyed by the enhanced wealth effect, are experiencing a recovery, with membership stores being the most popular grocery channel among them.

Since October 2022, Bank of America has conducted this survey bi-monthly. The data for this report was collected from 1,149 consumers aged 18 and above in China during the period of October 10-17.

The survey indicated an improvement in consumer spending in October. 53% of respondents reported an increase in outings and spending in the past two months, compared to 45% in August. While the Golden Week holiday provided a predictable boost, it is encouraging that this indicator is also higher than the levels recorded in the previous two Octobers.

The data depicted by Bank of America presents a slightly more optimistic view than the published retail sales figures, which may primarily reflect spending on goods. Looking ahead, consumers' willingness to spend in the future remains higher than in October last year but has slowed down from August, possibly due to some regression after concentrated spending during a longer Golden Week compared to previous years.

Recently, positive evaluations from luxury brands have fostered hope for an economic recovery among Chinese consumers. Bank of America's survey data supports this view. Although high-income and middle-income consumers have both increased spending in recent months, possibly due to holiday impacts, the future spending intention of high-income consumers is notably higher: 54% of high-income consumers expect to increase spending in the next six months, while only 31% of middle- and low-income consumers feel the same.

It is noteworthy that the gap in spending intentions between high-income consumers and others has widened in October. Why do affluent consumers feel more optimistic? The bank found that the wealth effect from the stock market is more pronounced among wealthier individuals due to the concentration of financial wealth in higher-income populations.

Regarding the real estate market, the survey indicated that 35% of respondents expect home prices to decline further over the next year, which is roughly in line with the data from August. Meanwhile, 27% believe home prices will rise over the next year, up from 24% previously. Overall, the disparity in home price expectations (i.e., the percentage of respondents expecting prices to rise minus those expecting them to fall) remains in a contraction zone, though the gap has narrowed compared to previous months. In summary, the housing market has not yet hit its bottom, but it is nearing that point.

The survey conducted by Bank of America revealed that membership stores have become the most popular shopping channel (chosen by 34% of respondents), with convenience, product variety, and product quality being the key considerations. Discount stores and live-streaming e-commerce have also gained popularity recently, but it may take more time for these preferences to reach a critical mass.