Business Maverick

Business Maverick

Morgan Stanley says take profits on China, downgrades shares

Morgan Stanley says take profits on China, downgrades shares
The Morgan Stanley building in Times Square New York on Tuesday, 9 June 2020. (Photo: Nina Westervelt/Bloomberg)

Morgan Stanley cut its rating on Chinese stocks to equal weight on Wednesday, saying investors should capitalise on a rally spurred by government stimulus pledges to take profits.

Chinese assets have gotten a boost in recent days amid a slew of promises from Beijing to spur growth and revitalise the nation’s flagging private sector. But easing measures are likely to come piecemeal, analysts at the bank wrote in a report, which may not be enough for shares to sustain gains.

What’s more, market sentiment is refocusing on the country’s structural challenges, they said, including local government issues and unemployment, which still lack detailed solutions.

“We take the July politburo meeting as sending more dovish signals given the clearer stance on stabilising economic growth and supporting the private sector,” analysts including Laura Wang and Fran Chen wrote. “However, we believe that investor confidence and conviction level are still very fragile, and that investors are still reluctant to pre-position in a major way, given that they have been disappointed by rather lacklustre/lukewarm easing measures seen since March.”

Other key issues, including the nation’s troubled property sector and geopolitical tensions with the US, also need to improve to attract sustainable inflows, they added.

The strategists had turned overweight in Chinese stocks in December amid the nation’s reopening, but slashed targets for key equity gauges in June, citing a delayed earnings recovery, weaker currency outlook and geopolitical uncertainties.

China fell to No. 13 from No. 3 in the bank’s 28 country developing-nation market allocation framework, relative to the last review.

As for a reentry point, the bank highlighted early October, when another top-level gathering of party officials could spur reforms, and the downside of earnings may be largely priced in. 

A “bottoming out of earnings growth and clearer structural outlook, in combination with continuous stabilisation of geopolitical conditions, would offer a better upgrade opportunity and attract back long-term money,” the analysts wrote.

Morgan Stanley also downgraded Taiwan to equal weight, noting that valuations are stretched amid a surge in tech stocks.

“While difficult to call a top amid a market driven by the AI-thematic and retail investors, we think a lot has been priced in and move to the sidelines,” the report said. DM


Comments - Please in order to comment.

Please peer review 3 community comments before your comment can be posted


This article is free to read.

Sign up for free or sign in to continue reading.

Unlike our competitors, we don’t force you to pay to read the news but we do need your email address to make your experience better.

Nearly there! Create a password to finish signing up with us:

Please enter your password or get a sign in link if you’ve forgotten

Open Sesame! Thanks for signing up.

We would like our readers to start paying for Daily Maverick...

…but we are not going to force you to. Over 10 million users come to us each month for the news. We have not put it behind a paywall because the truth should not be a luxury.

Instead we ask our readers who can afford to contribute, even a small amount each month, to do so.

If you appreciate it and want to see us keep going then please consider contributing whatever you can.

Support Daily Maverick→
Payment options

Daily Maverick Elections Toolbox

Feeling powerless in politics?

Equip yourself with the tools you need for an informed decision this election. Get the Elections Toolbox with shareable party manifesto guide.