Following Goldman Sachs, Morgan Stanley cuts targets for Chinese stock indices

Due to the geopolitical unrest, the weak currency outlook, and the delayed earnings recovery, Morgan Stanley has lowered its target for key Chinese stock indices. It decreased the Hang Seng China Enterprises Index target to 7,320 from 8,250 and the MSCI China Index target to 70 from 80, implying gains of roughly 15% from the most recent close for each index through June 2024. According to Bloomberg, despite reducing exposure, the global bank has kept its overweight recommendation.

“We acknowledge the significant hurdles to be overcome first and that the window for investors to reassess the market is narrowing,” Morgan Stanley strategists led by Laura Wang wrote in a Sunday note, according to Bloomberg. Meanwhile, the market may resume its outperformance from the second half on policy easing.

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The most recent note states that the strategists favour mainland shares over those listed offshore because the former can gain from re-rating state-owned enterprises and enjoy better liquidity. Their most recent target for the CSI 300 Index is higher than the previous one, which was 4,500 for December 2023, at 4,620 for June 2024.

Recent economic weakness and geopolitical tensions turned important Chinese gauges into underperformers on a global scale, causing the MSCI China and the HSCEI gauge to enter a bear market.

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