SHANGHAI: China’s twice-a-decade Communist Party congress may fail to give equity markets a boost this time around as Covid restrictions and a property market slump add to pressures on the economy, according to Goldman Sachs Group Inc.

Growth momentum has been historically strong in the run-up to the key political event, but “it’s uncertain whether the historical precedents will be valid” for the Oct 16 gathering, wrote strategists, including Kinger Lau.

Goldman expects China’s zero-Covid policy, which has been offsetting the impact of policy easing measures, to stay until the second quarter of 2023.

The Morgan Stanley Capital International China Index has typically generated about 2% returns in the month before the Party congress in the past, with commodity cyclicals and select consumer sectors trading well, the strategists said in a note.

The gauge has fallen more than 8% so far this month, underperforming benchmarks for regional and global stocks amid resurgent lockdowns and property market turmoil.

With zero-Covid restrictions as the key overhang to growth, Goldman Sachs sees fiscal policy doing most of the heavy lifting to offset economic headwinds.

It doesn’t expect a “drastic shift of policy dynamics” following the congress, but says the confirmation of personnel changes “may lead to better policy coordination and more efficient implementation,” the note said.

China’s President Xi Jinping is likely to secure an unprecedented third term at the leadership gathering.

The strategists said onshore Chinese shares are better positioned than their offshore peers, with their lower foreign ownership ratio and less sensitivity to external risk factors.

“The potential policy status quo continues to suggest that sectors and stocks favourably exposed to policy accommodation” should outperform, they said.

 - Bloomberg