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Morgan Stanley upgraded China equities from Equalweight to Overweight, amid the onset of earnings revisions and valuation recovery as the path to economic reopening becomes visible.
The upgrade marks the end of the bank’s equal-weight stance on Chinese equities that it has held for 23 months since January 2021, or almost two years.
“Multiple positive developments alongside a clear path set toward reopening warrant an upgrade,” the bank said in a note dated Sunday. “We are at the beginning of a multi-quarter recovery in earnings revisions and valuations.”
A “path towards reopening is finally set, likely bumpy but with no turning back,” the note said, adding that a clear direction for the nation to open up was reinforced when health officials announced detailed plans to boost elderly vaccinations.
The bank raised the target for the MSCI China Index by the end of next year from 59 to 70, while lifting that for the Hang Seng Index from 18,200 to 21,200. It recommended to further overweight staples which rode on the economic reopening and increase position of offshore China equities.
Base Case Targets by December 2023:
Hang Seng Index│18,200→21,200
Hang Seng China Enterprises Index│6,150→7,400
MSCI China Index│59→70
CSI 300│4,140→4,350
Bear Case Targets:
Hang Seng Index│12,300→13,900
Hang Seng China Enterprises Index│4,000→4,800
MSCI China Index│40→46
CSI 300│3,000→3,700
Bull Case Targets:
Hang Seng Index│22,000→24,500
Hang Seng China Enterprises Index│7,450→8,200
MSCI China Index│74→80
CSI 300│5,020→5,000