Goldman picks China healthcare stocks for a post-AI trade
Chinese corporate earnings are on a tear, giving investors clues on which stock sectors offer untapped returns, according to Goldman Sachs. Nearly half of MSCI China index constituents beat estimates in the second quarter, with IT and healthcare stocks dominating, the firm’s portfolio strategy research team said in a Sept. 7 report. Chinese stocks’ earnings tracked by Goldman Sachs grew at their highest quarterly pace in five years at 24% in the second quarter from a year ago — accelerating from just 6% in the first quarter. Most of the gains were driven by artificial intelligence-related names, as has been the case in other stock markets globally. “As AI-related stocks become increasingly crowded and concentrated, many investors are looking for additional growth opportunities beyond the AI Hard Tech ecosystem,” they said. Earnings call transcripts of more than 1,500 Chinese companies revealed management and investor “discussions have expanded beyond hardware and semiconductor sectors to downstream/application sectors, such as data center operators, AI models, autos, and healthcare,” the report said. To find potential winners, the analysts screened their buy-rated coverage for Chinese companies with expected earnings growth of more than 15% annually through 2027, and an increase in earnings per share estimates by a median of 7% over the past month. The screen favored stocks where Goldman’s earnings estimates were above consensus, indicating how earnings could be revised higher soon. Healthcare, particularly pharmaceutical stocks, showed up prominently, accounting for one-third of the 12 names that made the final list: Suzhou-based Innovent Biologics’ earnings are expected to more than double in the year ahead, while Goldman’s consensus is 54 percentage points above the consensus. The Hong Kong-listed stock claims a pipeline of drugs including cancer and metabolic diseases. Shanghai-listed BeOne Medicines earnings are also expected to more than double in the year ahead. The company, which develops cancer treatments, is also listed on the Nasdaq and Hong Kong. Hong Kong-listed CSPC earnings are expected to grow by 26%. The mainland Chinese company’s major businesses include nervous system and cardiovascular drugs. Hong Kong-listed Hansoh Pharma earnings are forecast to grow by 15%. The company’s products cover metabolic treatments as well as cancer. If earnings for each of the four companies grow as forecast, that would be above the investment firm’s expectation for the broader Chinese stock market. The Goldman analysts expect MSCI China earnings to grow by 8% this year, far more conservative than the consensus forecast for 17%. — CNBC’s Michael Bloom contributed to this report.
