Morgan Stanley & Goldman Sachs Adopt Cautious Stance on China

Morgan Stanley and Goldman Sachs Adopt a More Cautious Stance on Chinese Stocks

Major Wall Street brokerages are re-evaluating their outlook on Chinese equities as ongoing deflationary challenges and geopolitical uncertainties cast a shadow over earnings prospects in the world’s second-largest stock market.

A Shift in Sentiment

Morgan Stanley has downgraded Chinese stocks to a slight underweight position within the region, while Goldman Sachs has revised its target for the MSCI China Index, reflecting a less optimistic macroeconomic environment.

This cautious approach marks a significant shift from their more positive stance in September, following Beijing’s large-scale stimulus efforts. Since then, the MSCI China Index has dropped roughly 15% from its recent peak, as enthusiasm over government support measures has waned. Concerns have also risen over the potential for heightened trade tensions following Donald Trump’s return to the White House.

“We see limited chances of China’s government delivering sufficient fiscal stimulus to bolster consumption and housing in 2025,” wrote Morgan Stanley strategists led by Laura Wang. They emphasised that this restraint could exacerbate challenges for corporate earnings and market valuations in the months ahead.

Morgan Stanley has set its year-end 2025 target for the MSCI China Index at 63, a slight dip from its last closing level of 63.93. This adjustment comes just weeks after the firm reduced its bearish stance on Chinese equities in light of improved policy signals.

Goldman Sachs Revises Its Projections

Goldman Sachs, while still maintaining an overweight position on Chinese equities, has lowered its target for the MSCI China Index from 84 to 75. The firm noted that the potential for increased U.S. tariffs on Chinese goods could dampen earnings growth. In October, Goldman had upgraded its outlook on the market.

The firm also downgraded Hong Kong stocks to underweight, citing weak performance in the property and retail sectors, along with limited impact from China’s domestic easing measures on the region’s economy.

Broader Implications

The reevaluation by these prominent brokerages underscores the growing challenges faced by Chinese markets as they contend with both domestic economic headwinds and external geopolitical risks. Investors may need to navigate these uncertainties carefully as they reassess their exposure to this pivotal market.

Shaun

Founder

With over a decade of expertise spanning investment advisory, investment banking analysis, oil trading, and financial advisory roles, RealisedGains is committed to empowering retail investors to achieve lasting financial well-being. By delivering meticulously curated investment insights and educational programs, RealisedGains equips individuals with the knowledge and tools to make sophisticated, informed financial decisions.

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Shaun

Founder, Analyst

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