Morgan Stanley lifts China equity targets on earnings, yuan strength

Morgan Stanley has lifted its price targets for major Chinese equity indexes, citing stronger earnings, yuan resilience and China’s entrenched role in global supply chains, CNBC reported on Thursday. 

In its latest strategy note, the US investment bank said stronger corporate earnings, a firmer yuan and China’s entrenched role in global supply chains should support moderate gains across major indexes over the next year. 

The call comes at a time when global investors have been cautious on China, with sentiment weighed down by trade tensions, slowing growth concerns and competition from other Asian markets riding the artificial intelligence boom.

The bank’s strategists, led by Laura Wang, acknowledged that China’s equity market has been overshadowed in recent quarters, but stressed that fundamentals remain intact. 

Morgan Stanley’s upgrade is significant because it signals a shift in tone from global institutions that have often been reluctant to call a recovery in Chinese stocks. 

By highlighting policy-backed sectors such as semiconductors, biotech and green energy, the bank is betting that Beijing’s long-term industrial strategy will translate into earnings strength and investor confidence.

Price targets raised  

In the note, Morgan Stanley strategists led by Laura Wang said the Hang Seng Index could climb to 28,400, while the MSCI China was projected at 91. 

The HSCEI was set at 9,900 and the CSI-300 at 5,400. Each target represents an upside of between 8% and 12% from current levels.  

The bank argued that China’s equity market offers “sheer size of opportunities” at both the single-stock and thematic level, allowing investors to build portfolios that outperform peers.  

Earnings and policy support  

The optimism is underpinned by improving corporate earnings, particularly in sectors tied to China’s 15th Five-Year Plan. 

Morgan Stanley highlighted technology, semiconductors, biotech and green energy as areas benefiting from Beijing’s localization drive and policy support.  

China’s dominance in upstream supply chains, especially in high-end power and renewable technologies, was also cited as a competitive edge. 

The yuan’s relative strength against the US dollar adds another layer of resilience, helping to stabilize investor sentiment.  

Geopolitical catalysts  

The strategists pointed to the upcoming Trump-Xi summit as a potential catalyst.

While expectations are modest, symbolic outcomes such as selective trade relaxations or renewed cooperation on climate and fentanyl could redirect investor attention back to China.  

Stocks linked to Southbound trading programs and those positioned to benefit from summit outcomes were flagged as short-term opportunities.  

Market context  

China’s equity market has struggled in recent quarters, overshadowed by geopolitical risks and competition from other Asian markets riding the AI boom.

Yet Morgan Stanley believes moderate upside is achievable as investors refocus on fundamentals.  

“Solid fundamentals and promising themes should allow investors to capture opportunities that stand out against global peers,” Wang’s team wrote.   

The bank’s projections suggest that while gains may be moderate, China remains a critical market for global investors. 

With earnings recovery, supply chain strength and policy-driven innovation themes, Morgan Stanley sees a foundation for sustained growth through the second quarter of 2027.