By Senad Karaahmetovic
Citi strategists believe China stocks, and the MSCI China, in particular, will keep squeezing higher despite a very strong recent outperformance.
The index, which measures large and mid-cap representation across China securities listed on the Shanghai and Shenzhen exchanges, has gained about 57% since October, fueled by reopening activities initiated by authorities.
"The trailing PE has already rerated to 16-17x, but we think it can go to 18x. In addition, we think MSCI China EPS can grow 15% in 2023," the strategists said in a client note.
When these two factors are combined, MSCI China could add another 30%, Citi strategists project. If this scenario plays out, the MSCI China would double its valuation from last year's lows.
"We stay Overweight in our global allocation. We are also Overweight European equities, which have been closely correlated to China in the past," the strategists added.