Morgan Stanley has advised investors to reconsider their preference for mainland-listed Chinese stocks over those trading internationally. The shift in perspective comes as the bank identifies changes in key factors that have traditionally supported the appeal of onshore Chinese shares, Bloomberg reported.
Morgan Stanley strategist Laura Wang highlighted two significant changes in a recent note, “The two biggest supporting factors have shifted significantly over the past couple of months.” These factors include a decrease in purchasing activity by state-backed investors, often referred to as the “national team,” and a reduced likelihood of yuan depreciation, the report added.
The bank’s new stance marks a departure from its previous position, which had favoured mainland-listed shares for an extended period. This change comes as China’s onshore CSI 300 Index has experienced a decline of approximately 6% this year, while the MSCI China Index, which includes both onshore and offshore listings, has seen a rise of nearly 4%, as per the report.
Morgan Stanley analysts note that state-linked funds, which have been instrumental in supporting domestic stock prices through substantial share purchases, are likely to take an “interim break.” This pause in activity could potentially impact market dynamics, per the Bloomberg report.
Additionally, the bank has revised its outlook on the yuan exchange rate, now projecting stability around 7.1 towards the end of the year. This contrasts with earlier forecasts of depreciation. While a weaker yuan could potentially boost exports and benefit the broader economy, it would also decrease the value of Chinese stocks in foreign currency terms.
Chinese A-shares outlook
The report also mentions an increase in downward revisions of earnings estimates for Chinese A-shares, adding another layer to the complex picture of Chinese market performance.
This reassessment by Morgan Stanley adds to the ongoing debate among financial institutions regarding China exposure. While some banks like JPMorgan Chase & Co., UBS Global Wealth Management, and Nomura Holdings Inc. have recently adopted a more cautious stance on Chinese stocks, others, such as Barclays Plc, maintain a more optimistic outlook.
