Morgan Stanley To Cut Ratings On Chinese Stocks

Chinese assets got a boost recently despite a slew of promises from Beijing to stimulate growth while revitalizing the country’s flagging private sectors.

Morgan Stanley cut down its ratings on Chinese stocks to equal weight on Wednesday, claiming that investors should capitalize on a rally stimulated by the government-spurred pledges to take profits.

Chinese assets got a boost recently despite a slew of promises from Beijing to stimulate growth while revitalizing the country’s flagging private sectors. However, relieving measures are likely to come gradually, as per the reports written by the analysts at the bank, which is probably not substantial enough for the shares to sustain gains.

“What’s more, market sentiment is refocusing on the country’s structural challenges,” they added. “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 stabilizing economic growth and supporting the private sector,” as written by analysts, which included Fran Chen and Laura Wang. “However, we believe that investor confidence and conviction level are still very fragile and that investors are still reluctant to preposition in a major way, given that they have been disappointed by rather lackluster/lukewarm easing measures seen since March.”

The other vital issues, including the country’s troubled property sector and the geopolitical tensions with the United States, also need improvement to be able to attract a substantial quantity of inflows.

China dropped from its 13th position to 3rd in the bank’s 28-country developing-nation framework of market allocation, relative to the previous review.

As for the re-entry point, the bank had highlighted in early October when another peak-level gathering of party officials could stimulate reforms, and the setback of the earnings may be highly-priced in.

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

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