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‘China is back’ as Goldman, Morgan Stanley rush to rerate, with appetite at post-2021 high

Morgan Stanley raised its year-end index targets for MSCI China and Hang Seng by more than 7 per cent on improved outlook for earnings and valuations

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People cross a street in front of a large screen showing stock and economy data in Shanghai on March 11, 2025. Photo: EPA-EFE
Daniel Renin ShanghaiandPeggy Sitoin Hong Kong

Wall Street investment banks stepped up their bullish calls on Chinese equities as Morgan Stanley upgraded its target for a second time in as many months and Goldman Sachs said feedback from clients signalled global interest is at the highest level since the market’s previous peak four years ago.

“Broadly, investors’ interest and engagement levels in Chinese equities are arguably at the highest since the market reached its historical peak in early 2021,” Goldman strategists including Kinger Lau and Timothy Moe, said in a report entitled “Global marketing feedback: China is back” on Wednesday. “China (is) seen as one of the potential flow recipients, given its appeals regarding liquidity, valuations and diversification benefits.”

Goldman made its conclusion after engaging with a diverse range of investors from mainland China, Hong Kong, Singapore, the US and Europe since the Lunar New Year holiday in late January. The firm had upgraded its targets for Chinese equities in mid-February, saying widespread AI adoption would boost Chinese companies’ earnings over the next decade.

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Buying sentiment has improved since analysts at Deutsche Bank published its “China eats the world” report early last month, and global peers chimed in to recommend the nation’s stocks. DeepSeek’s artificial intelligence (AI) breakthrough in January helped spark a trillion-dollar rout in US tech stocks and swing fund flows to the region, they said.

The MSCI China Index and Hang Seng Index chalked up 16 per cent and 17 per cent gain this year, boosting their index capitalisation by US$460 billion and US$449 billion, respectively, according to Bloomberg data. Chinese stocks were gaining favour as money managers looked for alternatives outside the US stock market, analysts said.

Morgan Stanley raised its targets for key indices tracking Chinese stocks by more than 7 per cent in a report to clients on Tuesday. The firm said it expected the MSCI China Index to reach 86 by year-end instead of 77, and the Hang Seng Index to reach 25,800 instead of 24,000. Both new targets imply a 9 per cent upside from current levels.

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The upgrade reflected “moderately improved outlook for earnings and valuations,” strategists including Laura Wang and Jonathan Garner said in a report on March 25. They said the MSCI China Index deserved a valuation on par with MSCI Emerging Markets Index, at 12.5 times forward earnings.

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