Photographer: Qilai Shen/Bloomberg

China's Sizzling Stock Rally May Move to State-Owned Giants

Investors who missed out on this year’s blistering surge in offshore Chinese stocks should look to old economy shares for the next stage of the rally, according to Credit Suisse Group AG.

The brokerage’s new 12-month targets imply a further 13 percent gain in the Hang Seng China Enterprises Index -- a gauge loaded with state giants that dominate industries such as banking, insurance and energy. By contrast, Credit Suisse sees zero upside for the MSCI China Index, analysts Vincent Chan and Hu Shen wrote in a note Tuesday.

Old economy shares are trading near their lowest level in 15 years relative to the MSCI gauge, as investor demand for technology, real estate and auto shares spurred a 47 percent gain in the MSCI China Index since the start of January. There are signs that sentiment is shifting: the Hang Seng China Enterprises Index has climbed 5.4 percent this quarter, outstripping gains by the MSCI index.

Credit Suisse has targets of 13,000 for the H-share index, 85 for MSCI China, 28,000 for the Hang Seng Index and 15,500 for the MSCI Hong Kong Index.

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