Goldman knows one thing for sure about Chinese equities in 2018 and that’s this:
But, one thing we could say confidently: our current 2018 views are unlikely to stay unchanged as we go through the year.
So you know, they might as well have just put a big “take this with a grain of salt” stamp at the top of their China outlook piece, but this being Goldman, there’s still a lot of utility in hearing them out.
As you’re probably aware, Chinese shares suffered a pretty dramatic selloff on Thursday thanks to two things:
Kweichow Moutai has fallen 12% over the last six sessions:
The bond market jitters stem from investor concerns over Beijing’s ongoing efforts to deleverage the financial system, and the recent release of a proposed set of new rules for AMPs has only added to the concerns. All told, AMP AUM (which encompasses all of your favorite Chinese shadow vehicles including WMPs and trust deals) sits at roughly CNY100 trillion. If you account for the cross-holdings, it’s probably something like 60% of that total.
Generally speaking, there’s no telling what’s going to happen when that gets squeezed and the new rules look like they’re set to turn the screws on superfluous SPV layers and try to remedy some of the rampant maturity mismatch that’s part and parcel of some of these structures. That seems like it could spell trouble for the bond market and if there’s trouble there, it could spill over like it did on Thursday.
But who knows. As Goldman admits, Chinese equities are a moving target – figuratively and literally in this case. Speaking of targets, here are Goldman’s for Hong Kong and China:
And here’s some of the accompanying color, including the macro drivers and breakdown for the offshore forecast:
