Goldman Sachs Group Inc. said 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 China-related assets. 

“Sentiment on China-exposed assets has remained subdued this year and did not mirror the risk appetite rebound during the summer,” undershooting a measure of investor mood for global growth, 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 comes after the former consistently featured among the world’s worst this year. Recession fears, exacerbated by Federal Reserve’s policy tightening, are at the heart of the carnage in global equities. Meanwhile, Chinese assets were also pressured by COVID-induced lockdowns, a property crisis and rekindling of US-China tensions. 

The HSCEI Index has dropped 31 per cent this year compared to a 23 per cent fall in the S&P 500 Index. But Goldman raised caution over US equities last month arguing higher interest rates will weigh on valuations for stocks 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 policies 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. The bank prefers China’s A-shares over offshore equities as they are comparatively less exposed to global macro headwinds, the strategists wrote.