Goldman Sachs Group Inc. said that investors should sell S & P 500 Index calls and fund buying of the same options on the Hang Seng China Enterprises Index to position for a likely catch-up in battered Chinese-related assets.
"Sentiment on China-exposed assets has remained subdued this year and did not mirror the risk appetite rebound during the summer," strategists including Christian Mueller-Glissmann wrote in a note dated Oct. 17.
While the options market is portending swings in the near-term for China-related assets, the volatility of the HSCEI Index is cheap versus that for the S&P 500 Index compared to history, they wrote.
Goldman's preference for Chinese stocks over US peers stems from the fact that the former consistently ranked among the world's worst shares this year. Recession fears, exacerbated by Federal Reserve's policy tightening, are at the heart of the carnage in global stock markets. Meanwhile, Chinese assets were also pressured by Covid-induced lockdowns, a property crisis and renewed tensions between the US and China.
The HSCEI Index has dropped by 31% this year compared to a 23% fall in the S&P 500 Index. But Goldman raised caution over US equities last month arguing that higher interest rates will weigh on valuations for stock stateside.
Even JPMorgan Chase & Co.'s Marko Kolanovic, who has been Wall Street's most vocal bull this year, cut the size of his equity overweight allocations, citing increasing risks from central bank policy and geopolitics.
Goldman is overall underweight in equities in its cross-asset allocation, but remains overweight on China in Asia and neutral on the S&P 500 Index. Strategists wrote that the bank prefers China's A-shares over offshore equities as they are comparatively less exposed to global macro headwinds.
