Market Overview

Goldman: 'Buy On Corrections' In China

Goldman: 'Buy On Corrections' In China

In a new report out this week, Goldman Sachs analyst Kinger Lau gives the firm's take on the market turmoil in China. Despite fears of a market crash, Lau believes that the recent drop in the Chinese market is actually just a large bull market correction.

Correction, Not Crash

According to Goldman, global bull markets that have occurred during the last 40 years have witnessed a correction of at least 20 percent 44 percent of the time. These corrections are driven primarily by shrinking PE multiples, but rarely do they contract below 15 times.

Goldman believes that what China is currently experiencing is a standard bull market correction, not a transition into a bear market.

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Deleveraging Is Key

In the A-shares market, Goldman believes that the leverage unwinding process is about two-thirds complete. Lau explains that the deleveraging process is a critical part of maintaining the long-term bull market in China.

While the process may be painful in the short-term for investors, Goldman is confident in the Chinese government’s willingness and ability to provide support to the market to avoid any potentially dangerous collapse.

Buy The Dip?

Since Goldman sees the dip in China as a correction and not an end to the bull market, the recent pullback has created value in many parts of the Chinese market. “The liquidity backdrop for H/ADRs could be choppy near-term as Mainland flows unwind, but the selloff has offered investors attractive opportunities to buy,” Lau wrote.

In addition to A-shares stocks that are cash-rich and attractively valued, Goldman recommends buying oversold ADRs with solid fundamentals. The firm recommends Jumei International Holding Ltd (NYSE: JMEI) and Alibaba Group Holding Ltd (NYSE: BABA).

Latest Ratings for JMEI

Apr 2016DowngradesEqual-WeightUnderweight
Mar 2016TerminatesBuy
Nov 2015DowngradesBuyUnderperform

View More Analyst Ratings for JMEI
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