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Chinese economy's Improving Fundamentals Could Drive Further Upside in 2019

23 April 2019Economics
Chinese economy's Improving Fundamentals Could Drive Further Upside in 2019 - Market Insights by Citibank UK

While the rally so far has been mainly driven by policy easing, sentiment recovery and valuation re-rating, Citi analysts expect further upside to be driven more by fundamentals and earnings growth.

Earnings growth could accelerate after 1H19E: While earnings growth could remain subdued in 1H19E given a high base last year, Citi analysts expect a visible acceleration going into 2H19E. Citi analysts forecast MSCI China earnings growth to reach 13% yoy in 2019, and further accelerate to 16% in 2020E on growth recovery in the new-economy sectors, especially the Internet names. While the market rally so far this year has been mainly driven by policy easing, sentiment recovery and valuation re-rating, further equity market upside is could be driven more by fundamentals and earnings growth. Citi analysts overweight Internet, Consumers (non-Auto), Non-bank Financials and selected Capital Goods.

MSCI China earnings growth projection - Market Insights by Citibank UK

Past performance is no guarantee of future results, real results may vary. Forecasts are expressions of opinion, are not a guarantee of future results and are subject to change.

Delayed MSCI indexes transition does not affect A-share inclusions: MSCI recently announced a delay in the transition of the MSCI All China Indexes to the MSCI China All Shares Indexes to November 26, 2019 from the previously planned June 1. The transition helps align the index methodology to be fully governed by the MSCI GIMI framework, which is consistent with further A-share inclusion in the future. The delay follows feedback from market participants, in order to provide additional time for smooth implementation. Citi analysts believe the delayed transition is unlikely to affect the A-share inclusion process and the three-step inclusion may kick off as planned starting from May this year.

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