Interest rate hikes turn banks bullish on China stocks

Investment banks are predicting a strong performance from Chinese stocks on the back of a fourth interest-rate hike in less than six months, Bloomberg reported. Credit Suisse (CS.NYSE, CSGN.SIX) boosted its 12-month forecast for the Hang Seng China Enterprises Index (HSCEI) to a gain of 28%, while HSBC (HBC.NYSE, HSBA.LSE, HSB.Euronext, 0005.HK), Macquarie (MQG.ASX) and Citigroup (C.NYSE, 8710.TYO) all recommended that investors look at buying opportunities. This follows bullish predictions from Goldman Sachs (GS.NYSE) and Deutsche Bank (DB.NYSE, DBK.FWB) last month, which equate to a sign of confidence in Beijing’s ability to rein in inflation without derailing economic growth. The HSCEI has gained 0.6% since the series of interest rate increases began in October and is currently valued at 13 times earnings. This puts it at a 4% discount to the MSCI Emerging Markets Index, which has climbed 9.5% since October. In the past five years, the HSCEI has on average been valued at a 13% premium to the emerging markets index.