Morgan Stanley has upgraded each the MSCI China and Dangle Seng indices to equal weight, pointing to what it sees as a structural regime shift in Chinese language equities—significantly within the offshore phase. The financial institution argues that after years of deflationary drag, a restoration in return on fairness (ROE) and valuations is taking maintain.
Key to this turnaround are three forces:
improved company self-discipline, rising shareholder returns, and a shift in index composition towards higher-quality, much less macro-sensitive sectors.
Since 2020, dividend yields and buyback exercise have steadily elevated, whereas the load of GDP-exposed sectors within the MSCI China Index has fallen sharply.
Morgan Stanley additionally sees renewed tech momentum, with corporations like AI startup DeepSeek highlighting China’s potential to stay aggressive in innovation—providing a path for ROE progress even in a deflationary surroundings.
The financial institution has lifted its 2025 year-end targets to
24,000 for the Dangle Seng, 8,600 for the Dangle Seng China Enterprises Index,
whereas sustaining its CSI 300 goal at 4,200.
It expects offshore equities to outperform within the close to time period, given the onshore market’s heavier publicity to deflation-sensitive sectors.
For a extra bullish outlook, Morgan Stanley says a clearer macro enchancment and easing geopolitical tensions shall be required. Nonetheless, it believes the groundwork has been laid for a re-rating, with overseas investor positioning nonetheless mild and valuations poised to normalise.
