Goldman says Beijing is stepping up support for businesses — and names stocks that will get a boost

Published Wed, Jun 15 20228:10 PM EDT

Evelyn Cheng @in/evelyn-cheng-53b23624 @chengevelyn

Whether it's more government spending, an interest rate cut or a change on the regulation front, Goldman Sachs is expecting a range of policy support in China — and the bank has stock picks for each policy. The investment bank's Chief China Equity Strategist Kinger Lau and a team screened for a list of names earlier this month, outlining companies that are set to benefit. Here are some of Goldman's Hong Kong-listed stock picks, all buy-rated: Property: China Resources Land Among industries, real estate ranks the highest when it comes to being best positioned to benefit from further policy easing in the property sector, according to Goldman's analysis. China Resources Land is one of the five state-owned Chinese developers listed in Hong Kong that Goldman has a buy rating on. The company reported 18.1% growth in revenue to 212.11 billion yuan ($31.5 billion) in 2021. Profit attributable to owners of the company rose by 8.7% to 32.4 billion yuan. Analysts generally expect state-owned real estate developers to survive better as Beijing's crackdown on the industry's high reliance on debt shakes out. While there are signs of easier regulation on property, economists expect recovery will be gradual. Regulation: Meituan Dianping Since late 2021, Goldman Sachs predicted that China's regulatory crackdown on well-known internet giants would become more market-friendly this year. Their model implies potential 10% to 15% gains for the internet sector without accounting for improving company fundamentals. However, the analysts noted the persistent risk of Chinese companies being forced to delist from U.S. stock exchanges. One of the two Hong Kong-listed Chinese internet names on Goldman's list is food delivery and retail services company Meituan Dianping . Meituan Dianping reported first quarter revenue of 46.27 billion yuan, topping expectations of 45.59 billion yuan, according to FactSet. Adjusted loss of 1.84 billion yuan was better than the expected 1.9 billion yuan loss. Monetary policy: Country Garden Services Goldman picked Property manager Country Garden Services as one of five real estate services companies the analysts expect will be most sensitive to looser monetary policy. "China has embarked on an easing trend since late 2021," the analysts said, pointing to multiple cuts of benchmark interest rates and greater issuance of local government bonds. Country Garden Services' profit has grown significantly every year since 2018, despite the pandemic and China's crackdown on real estate developers. Profit rose by more than 50% in 2021 to 4.35 billion yuan. Fiscal policy: Kingdee International Software Goldman analysts expects fiscal policy to support additional fixed asset investment for infrastructure. Among Chinese stocks that tend to do well when such investment picks up, Kingdee International Software is the most sensitive, according to the investment bank's analysis published in March. Kingdee sells enterprise software for managing supply chains, real estate development, government finance and other projects. The company reported revenue grew 24% in 2021 to 4.17 billion yuan. Loss attributable to shareholders was 302.33 million yuan, a roughly 10% decline year-on-year. Covid recovery: Sands China Among the consumption stocks listed in Hong Kong that made Goldman's China Covid recovery list, casino operator Sands China has cut its earnings the most since March — down by 248% as of mid-May. That low base potentially sets the stock up to benefit from earnings growth when lockdown measures ease, according to the bank's Covid recovery analysis. "We believe the risk/reward of selectively engaging in Covid recovery beneficiaries in the equity universe is becoming attractive." Sands China reported a narrower loss of $1.05 billion in 2021, down from a loss of $1.52 billion the prior year. Net revenue rose 70.4% to $2.87 billion. — CNBC's Michael Bloom contributed to this report.

China's Ministry of Finance, pictured here in Beijing in 2021, is refunding taxes and cutting fees to support economic growth.

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