Morgan Stanley analysts have revised their negative stance on Chinese stocks, mirroring their counterparts on Wall Street, foreseeing a sustainable uptrend driven by the nation’s advancements in artificial intelligence.
Laura Wang and her team now advocate an equal-weight position on the asset class, projecting the MSCI China Index to hit 77 by the conclusion of 2025. This represents a 22% surge from their earlier forecast and implies a further 4% uptick from Wednesday’s close. The index recently transitioned into a bull market.
The strategists highlighted a significant shift within China’s equity market, particularly in the offshore sector, expressing more confidence in the ongoing upturn in MSCI China’s performance compared to the rally in September last year. This adjustment marks a significant turnaround for Morgan Stanley, historically doubtful of Chinese equities, signifying a potential shift in global investors’ perceptions of the once-unpopular market.
AI advancements showcased by DeepSeek and a conciliatory approach from President Xi Jinping towards tech leaders have reignited interest in Chinese stocks, particularly within the tech sector. Goldman Sachs, JPMorgan, and UBS have also presented bullish outlooks on the MSCI China Index.
Morgan Stanley’s analysts highlighted efforts by firms to increase stock value through buybacks, along with regulatory changes and China’s AI capabilities, as factors behind their improved outlook. They have transitioned from deep skepticism to cautious optimism regarding the asset class.
Chinese stocks have made significant strides this year, rebounding from a prolonged period of underperformance compared to global counterparts. Despite recent profit-taking activities as certain benchmarks have entered overbought territory, the Hang Seng China Enterprises Index and MSCI China Index remain over 20% above their January lows.
While the CSI 300 Index saw a minor dip, Morgan Stanley has raised targets for the Hang Seng China Enterprises and Hang Seng indices, maintaining the forecast for the CSI 300. The analysts anticipate increased global investor participation, pointing out China’s deflation as a short-term challenge for onshore stocks, which are expected to gradually align with offshore peers.
