Due to the geopolitical unrest, the negative currency outlook, and the delayed earnings rebound. Morgan Stanley has lowered its target for key Chinese stock indexes.
Recent cut and future prediction
It decreased the Hang Seng China Enterprises Index aim to 7,320 from 8,250 and the MSCI China Index target to 70 from 80, suggesting gains of around 15% from the most recent closing for each index through June 2024. The global bank has reduced exposure while keeping its Overweight recommendation.
According to economists Laura Wang and Jonathan Garner, the modification is a result of Morgan Stanley recently lowering its projections for China’s economic growth through the next year.
Earlier, because to worries about profits and currency, Goldman Sachs also lowered its objective for MSCI China.
Expected bullish in China’s stock market
Morgan Stanley strategists began to be optimistic on Chinese stocks in December and increased their MSCI China Index target in January. Due to the nation’s reopening frenzy, the majority of significant banks were optimistic about China. The most recent decrease in the objective, however, indicates the dramatic reduction in optimism over Chinese stocks.
What does the analyst say?
However, “we acknowledge the significant hurdles to be overcome first and that the window for investors to reassess the stock market is narrowing,” Morgan Stanley analysts lead by Laura Wang wrote in a Sunday note. The stock market’s outperformance may resume from the second half on policy easing.
“More significant earnings pressure due to property sector issues, local government financing vehicles, deflation, and delayed stimulus follow-through. The downward adjustment to our targets is driven by a combination of much lower earnings expectation in 2023 and a lower valuation multiple assumption,” the analysts stated in the report.
Target
The base-case June projections for the Hang Seng, Hang Seng China Enterprises Index, and CSI 300 indices were also reduced by The Wall Street Bank to 18,500, 6,450, and 4,000, respectively. In addition, target prices for these two indexes were decreased due to China’s roughly 30% weight in MSCI EM and MSCI APxJ.
Bottom Line
Following a rise sparked by government stimulus measures, Morgan Stanley earlier this month downgraded Chinese equities to equal weight and advised investors to take profits. As a result of the deteriorating economy and rising geopolitical unrest, important Chinese indices such as the HSCEI and MSCI China underperformed globally, entering a bear market.