China stocks may post 6-8% upside over next 12 months on pivot to growth policies, Morgan Stanley says
- Morgan Stanley maintains its equal-weight recommendation on Chinese stocks, saying hurdles to a sustainable market recovery are still high
- The US bank continues its preference for consumption stocks and select materials and industrial companies while retaining its underweight rating on property, banks
The MSCI China Index, which tracks 765 companies trading on the onshore and offshore markets with a combined capitalisation of US$1.87 trillion, will probably finish at 60 by the end of next year, a 5.8 per cent gain from last week’s close, analysts led by Laura Wang and Jonathan Garner said in the US investment bank’s strategy report released on Sunday. Their end-2024 target of 18,500 for the Hang Seng Index implies a 6.2 per cent upside from the current level, while a 3,850 target for the yuan-denominated CSI 300 Index represents a 7.6 per cent gain, according to the report.
Morgan Stanley maintains its equal-weight recommendation on Chinese stocks, saying that the hurdles holding back stocks still remain and that Beijing would need to do more on the policy front to convince investors of its determination to restore growth.
The bank said enticements could include “more clarity on policy priorities and consistency, follow-up measures to break out of the debt-deflation loop, the path to achieving sustainable growth in a post-property boom era, and a stabilising geopolitical environment”.
Chinese stocks’ performance has been weak in the current year as economic growth ran out of steam soon after the nation reopened its borders following three years of pandemic curbs, leading to the unwinding of the reopening trades. The Hang Seng Index has declined 12 per cent year to date and the CSI 300 gauge has fallen 7.6 per cent, both among the worst-performing key benchmarks in Asia. To revitalise growth and prop up stocks, policymakers have unveiled a flurry of stimulus measures, including loosening of restrictions on the property market and a surprise expansion of the budget deficit through the sale of 1 trillion yuan (US$137.1 billion) of special government bonds.
