Goldman and Morgan Stanley differed in their forecasts for Chinese stocks. Is the market already overheated?

Investment bank Goldman Sachs improved its full-year outlook for mainland Chinese stocks. Their gains in August were the strongest since the fall of 2024. Morgan Stanley is more restrained towards Chinese stocks and suggests looking towards Japanese food and medical equipment manufacturers, as well as the airline sector.

Goldman Sachs raised its 12-month forecast for the mainland China CSI 300 blue-chip index from 4,500 to 4,900 points on Aug. 28, citing attractive valuations, favorable market positioning and the potential for long-term earnings growth in the high single digits, Bloomberg reports.

"The uptrend has the potential to continue despite short-term profit-taking pressures," Goldman Sachs economist Kinger Lau wrote to clients. Lau said excess liquidity and rising market valuations, rather than improving economic conditions, have been the main drivers of gains in securities around the world, including China.

Morgan Stanley analysts were more restrained, noting signs of overheating on the Chinese stock market. That said, Japanese stocks may benefit from the easing of trade risks: Tokyo's late-July agreement with Washington to cut import duties to 15% has sharply reduced the uncertainty that had previously held back investors, especially in the auto sector. "We believe the distortions in investor positioning caused by tariff concerns in recent months will gradually fade," financial platform Investing.com quoted a research note from Ma Stanley as saying.

According to Morgan Stanley, the shares of one of the world's largest manufacturers of instant noodles Nissin Foods, the world leader in the field of equipment and reagents for blood analysis Sysmex, the largest player in the market of endoscopy of GI Olympus and Japan Airlines, which together with All Nippon Airways dominates the domestic airline market in Japan, have a good potential in the current changes. At the same time, Morgan Stanley cautioned against investing in the retail and financial sectors, pointing to their inflated valuations.

Chinese stocks are preparing to end August with the biggest one-month rise since September 2024 - excess liquidity continues to drive the rally despite warnings from technology companies after a recent spike in quotes, TradingView reports citing Reuters. Beijing's efforts to curb aggressive price competition are also contributing to the rally in Chinese stocks, the agency said.

The blue-chip index CSI 300 has gained almost 10% since the beginning of August, while the Shanghai Composite has gained almost 8%. Hong Kong Hang Seng added 1% in August. Investing.com attributes the weak performance of Hong Kong stocks in August to the sell-off in the technology sector in the second half of the month.

Japan's Nikkei 225 and TOPIX indices rose 4-5% in August, hitting all-time highs several times this month.

This article was AI-translated and verified by a human editor