The People's Bank of China's (PBOC) series of "nuclear bomb-level" monetary policies have completely ignited the Chinese stock market.

Throughout September, both the Shanghai Composite Index (A-share market) and the Hang Seng Index (Hong Kong stock market) skyrocketed by more than 17%. During the "Eleventh" National Day holiday when the A-share market was closed, global capital continued to frantically "sweep up" stocks. Last week, the Hang Seng Index surged by 10.2%, reaching a two-and-a-half-year high, while the US Nasdaq China Golden Dragon Index jumped nearly 12%.

From a high place, one cannot bear the cold. The most pressing question for investors now is, how long can this bull market last? Where is the end point? What other assets are worth paying attention to?

The Hang Seng Index is aiming for 33,000 points, and the CSI 300 is expected to return to 5,500 points?

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Wall Street generally believes that after the PBOC's monetary policy "big package" has been implemented, large-scale stimulative fiscal policies are "on the verge of being launched," coupled with the emotional aspect that retail investors are rushing into the market, there is still a significant upside potential for the Chinese stock market.

On October 5th, Goldman Sachs upgraded the Chinese stock market to "overweight" in its latest report, estimating that it could still rise by 15-20%. Goldman Sachs raised its target price for MSCI China from 66 to 84 and its target price for the CSI 300 Index from 4,000 to 4,600.

Morgan Stanley estimated in its latest research report that if retail investors continue to maintain an optimistic sentiment, up to 2-3 trillion yuan of Chinese household financial assets could be reallocated to the stock market. The firm divided the rebound of the Chinese stock market into three stages:

First stage: A preliminary increase of 15%, which the market has already completed;

Second stage: An expected growth space of 12%, driven by global investors' optimism about the Chinese market and asset diversification allocation;In the third phase, it is necessary to see an increase in corporate profits, an improvement in debt conditions, and the effective implementation of government fiscal stimulus policies.

Deutsche Bank, on the other hand, exclaimed, "If you miss out on this rebound, the consequences are on you," noting in its research report released last week that despite the possibility of the market being overbought in the short term, investors should continue to increase their exposure to Chinese stocks. The bank estimates that by as early as 2025, the Hang Seng Index and the CSI 300 Index will return to their historical peaks of 33,000 and 5,500 points, respectively, representing potential increases of 42.9% and 36.9% from their current levels.

Over the past two years, we have repeatedly written that we are particularly optimistic about the Hang Seng Index, expecting it to surpass its previous peak of 33,000 points in an upward cycle, while the CSI 300 Index will retest the 5,500 point level. Our main question is how long this will take, and according to the table below, it could be as early as 2025.

Opportunities still exist in the large financial sector, with securities stocks expected to continue leading the bull market. J.P. Morgan believes that despite several rounds of significant increases, Chinese financial stocks still appear to be undervalued. A team of analysts led by Katherine Lei released a report last week stating that Chinese financial stocks as a whole are trading at a 39% discount to their peak book-to-price (PB) ratio in 2020/2021, and a 65% discount compared to the peak in 2015.

Among financial stocks, J.P. Morgan's preference order is securities firms (A/H shares) > life insurance (H shares) > growth-oriented banks (A/H shares) > life insurance (A shares) and property insurance (A/H shares) > state-owned commercial banks (A/H shares). That is to say, J.P. Morgan believes that securities stocks have the greatest upside potential, while state-owned commercial banks have the least. The institution wrote:

Securities firms have the highest beta coefficient in China's banking sector, and their earnings should also benefit from the increase in margin trading and average daily trading volume (ADT). Our sensitivity analysis shows that in an optimistic scenario, the upside potential for securities firms' earnings per share (EPS) could be 37%, and the return on equity (ROE) could reach approximately 12.1% (compared to the current Bloomberg consensus estimate of around 7.1%).Coincidentally, Morgan Stanley also has a positive outlook on brokerage stocks. Its latest research report indicates that if investors consider the recent high average daily trading volume as the norm, then brokerage stocks may experience a short-term overshoot.

Should the momentum be strong enough, we believe that retail investors might take the 2 trillion RMB (average daily trading volume two days before the A-share market holiday) as the operational rate, which could lead to a further 30% increase in (brokerage stock) earnings, with ROE potentially reaching around 13%.

Goldman Sachs has upgraded the rating for insurance and other financials (such as brokerages, exchanges, investment companies) to "overweight," anticipating an increase in capital market activities and a continued improvement in asset performance.

When will the rebound of real estate stocks end?

JPMorgan's research report last week pointed out that the recent rebound in Chinese real estate stocks was mainly driven by market sentiment, with investors expecting a larger scale of fiscal stimulus policies and hoping for the Politburo's "stabilization after the decline" tone.

The report notes that the current price-to-earnings (P/E) ratio for state-owned real estate companies is 7.9 times, which has returned to the mid-term level before 2018. The price-to-book (P/B) ratio for state-owned real estate companies is 0.68 times, while for private enterprises it is 0.56 times. These valuation levels seem to have reflected a similar market environment before 2020.

JPMorgan believes that if the scale of fiscal stimulus is less than expected, or if real estate sales data begins to weaken, the market may start to take profits.

The report also points out that investors should pay attention to lagging stocks in the property management sector. These stocks have relatively solid fundamentals, but their valuations have dropped from 40 times P/E to 15 times.Consumer Stocks Reach a New Starting Point

After the Politburo meeting, multiple departments and local governments have introduced plans and activities to promote consumption. Citigroup believes that the primary purpose of these policy changes is to boost consumption, and it is expected to first have a positive impact on consumer stocks.

Citigroup's latest research report indicates that if the government introduces new fiscal stimulus measures in the future, coupled with the positive wealth effect brought about by increased liquidity in the real estate market and the stock market, consumer spending on high-end or non-essential goods will also be stimulated at a later stage.

Specifically, Citigroup's preference order for the consumer goods industry is: dairy products > beer > condiments > beauty care. In the non-essential consumer goods industry, Citigroup is more optimistic about household appliances, catering, and hotels.

Internet, industrial, and healthcare stocks are worth paying attention to.

Morgan Stanley believes that as the Chinese stock market completes the three stages of rebound, investors should focus on companies that may benefit from the economic recovery, especially those with attractive valuations, large size, and good liquidity.

Among them, large internet companies and consumer stocks may become winners of the rebound due to their sensitivity to economic growth.

We believe that large internet companies and the broad consumer goods industry are in a favorable position due to their still attractive valuations, the nature of large-cap stocks, high liquidity, and their exposure to reflation.

As companies increase investment, Morgan Stanley points out that stocks related to industry, materials, and IT spending may also perform well. On the policy front, any new social welfare measures, such as improvements in medical insurance, could have a positive impact on healthcare stocks.Additionally, Goldman Sachs has upgraded metals and mining to a neutral weighting, while downgrading telecommunications services to an underweight position.

By increasing cyclical exposure through raising metals and mining to market weight, this adjustment is driven by measures in China's real estate market and potential fiscal stimulus, as well as serving as a hedge against geopolitical risks.

Conversely, due to their defensive nature, rising valuations, and lower sensitivity to interest rates, we have downgraded telecommunications services to an underweight position.