After a more than seven-year mire, China stocks may finally be on the cusp of a long-term bull run, shrugging off an economic slowdown, analysts said.
"Looking back at 2014, China's execution on containing the fallout from credit risks and the physical property market exceeded our expectations," Nomura said in a note Tuesday. "2015 will be an even better year," marking the start of a three-year bull rally.
At the same time, Nomura expects China's gross domestic product (GDP) growth will fall to 6.8 percent, compared with Beijing's and consensus' forecasts for 7 percent as investment growth slows and the property market continues to correct.
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"This three-year rally will be driven by both earnings growth and valuation re-rating, as structural reforms and economic rebalancing yield capacity rationalization, higher operating efficiency and ROE (return on equity) in the corporate sector, private or SOEs (state-owned enterprises), while macro polices contain downside risks," Nomura said.
It forecasts the MSCI China index will trade in a 60-76 range this year, for around 15 percent upside from the end-2014 level to this year's peak. But it also expects volatility, with the year's likely trough likely to mark around 10 percent downside from last year's close. The MSCI China index is currently trading around 65, after falling off its peak around 103 touched in November 2007.
Nomura see that as just the beginning, however, forecasting the MSCI China will rise 60 percent by its peak in 2017 -- or around the 100 level -- amid earnings growth and valuation re-rating. It also expects Hong Kong's HSCEI index could top 19,000 over the same period, from around 11,983 currently.
The Shanghai Composite ended Tuesday up 0.1 percent at 3353.01, after tapping 3394.22 intraday, its highest since 2009, but still well off the peak of around 6000 touched in late 2007.