Table of Contents:
A change of course for investment banks
In recent months, Wall Street banks have begun to show a more cautious approach to Chinese equities. This change was driven by a number of factors, including persistent deflationary pressures and growing geopolitical tensions. The prospects for the world’s second largest stock market have become increasingly uncertain, leading to a review of investment strategies by institutions such as Morgan Stanley and Goldman
Sachs.
Chinese stock valuations fall
Recently, Morgan Stanley’s strategists reduced their exposure to Chinese equities to a slight underweight. This decision was influenced by a less favorable macroeconomic environment, which led Goldman Sachs to revise its target on the MSCI China Index. The current valuations of Chinese equities represent a marked change from a period of optimism, which had been fueled by a stimulus blitz by the Beijing government
in September.
Concerns for the future
The MSCI China Index has fallen by about 15% from recent peaks, highlighting a weakening of enthusiasm for additional government support measures. In addition, Donald Trump’s victory in the US elections has raised concerns about possible higher tariffs on China, further complicating growth prospects. Morgan Stanley analysts have expressed skepticism about the possibility that the Chinese government could implement sufficient fiscal stimulus to support consumption and the residential sector in 2025, citing concerns about moral hazard and a premature transition to a ‘welfare
state’.
Forecasts for the Chinese market
Morgan Stanley’s forecasts for the MSCI China index indicate an end-2025 target set at 63 points, slightly lower than the recent close of 63.93 points. Despite this, Goldman Sachs maintained an overweight position on Chinese equities, while warning that potential US tariffs could negatively affect earnings growth. In addition, Goldman downgraded Hong Kong shares to underweight, due to weakness in the real estate and retail sectors
.
