Citi delays its stock rebound forecasts for China as recovery takes longer than anticipated

According to a report released on Thursday by Citi analysts, China’s economic recovery is taking longer than anticipated, causing a three-month delay in the firm’s forecasts for a stock market rebound. Initially set for June, Citi now expects the Hang Seng Index to reach 24,000 by the end of September, which is about 18% higher than current levels.

On Thursday, the Hang Seng Index finished at 20,331.20, showing a 2.8% year-to-date increase. However, Citi analysts predict a slower-than-anticipated post-COVID economic recovery in China, resulting in them postponing their estimates for a stock market rebound by three months.

Chinese economic growth has shown modest signs of recovery in the first two months of this year after the country lifted stringent Covid controls in December. However, earnings reports from major Chinese e-commerce companies, JD.com and Alibaba, suggest that consumers are still cautious about their spending habits.

Citi added Tencent, retailer Topsports, and state-owned Sinopharm to its Hong Kong stock picks following Tencent’s quarterly results, which showed that businesses were more willing to spend on advertising, particularly in the company’s expanding video accounts and e-commerce portals.

Sands China, Chow Tai Fook, and Air China are still included in Citi’s list of recommended stocks. However, the firm’s analysts have postponed their forecasts for a rebound in two additional Chinese stock indexes by three months, now expecting it to occur by the end of September. Citi’s target for the CSI 300 is 4,500, which is approximately 9% higher than its current level of around 4,125 on Friday.

Citi’s forecast for the MSCI China index is 78, which is approximately 18% higher than the current level of around 66. China’s economy is facing headwinds due to declining exports resulting from slower growth in the U.S. and Europe, as well as a downturn in the large real estate sector.

According to a report by Goldman Sachs credit strategy analysts on Thursday, they anticipate that the default rate for high-yield Chinese property developers will be 19% this year, which is an improvement from last year’s 46.4%. However, the report notes that the rate is still elevated, highlighting the uncertainty of the physical property market’s recovery.

This week’s quarterly survey by the People’s Bank of China revealed that there is a growing desire among Chinese citizens to purchase homes again. The survey also reported an increase in expectations for a rise in home prices. Furthermore, China’s movie box office has displayed early indications of recovery.

According to Maoyan, the popular movie ticketing site, “Suzume,” an animated film, has become the highest-grossing Japanese film in China this month, with a box office collection of over 650 million yuan ($94.49 million), surpassing the previous record holder “Your Name,” which was also directed by the same filmmaker.

According to data, “The Super Mario Bros. Movie” earned 32.3 million yuan on its opening day in China, which coincided with a local holiday. Deadline noted that this was the biggest opening for a Hollywood animation since the start of the pandemic in 2020. More foreign movies are being permitted in China after authorities only allowed a limited number of overseas films to be shown during the pandemic.

On April 18, China will release its first-quarter GDP and other economic data. Citi predicts that in 2023, consumer discretionary and utilities sectors in the Hang Seng Index will show the most significant growth in earnings per share, while energy and industrials sectors are likely to experience declines.