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Morgan Stanley upgrades China to overweight

This is the first time Morgan Stanley has been overweight China in almost two years.
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Morgan Stanley has upgraded its outlook on China to overweight for the first time in nearly two years.

The US investment bank cited a myriad of factors including increasing relaxation of the country’s Covid-19 policy, property market stabilisation, an improvement in the regulatory outlook for technology companies and signs of US-China relations easing.

Its 2023 end base case price targets for the Hang Seng index, HSCEI, MSCI China and CSI300 are 21,200, 7,400, 70 and 4,350, respectively, implying 13%, 16%, 14% and 12% upside from the 1 December price close.

At 23 months, this had been the longest held equal weight stance Morgan Stanley had maintained for China in a history of over a decade.

Morgan Stanley warned that the outlook would likely be bump though.

“This reflects a zig-zag path towards Covid-zero exit. Volatility is likely to remain relatively elevated versus broad EM with a wide range of ups and downs from binary sentiment swings between over-optimism and disappointment of gradual or sometimes slow progress,” its analysts Laura Wang and Jonathan Garner wrote.

The bank noted that the path towards reopening had already been set in motion on 10-11 November when the government announced several measures despite a rapid surge in cases such as a vaccination campaign for the elderly and noted that references to ‘dynamic zero-Covid’ had become less commonplace lately.

Regarding the property sector, Morgan Stanley also noted that efforts to support developers have become more concerted and meaningful since the Party Congress, while there were signs that the regulatory crackdown on big tech was ending with reported to be launching a Hong Kong IPO by the end of the year.

There are also signs of a thawing in relations between China and the US following the meeting between US President Joe Biden and China President Xi Jinping at the sidelines of the G20 summit in Bali, Indonesia. US Secretary of State Anthony Blinken is tentatively scheduled to visit China in early 2023.

Part of the Mark Allen Group.