Morgan Stanley upbeat on HK stocks

The correction in Hong Kong share prices has created buying opportunities and investors should be on the lookout for a possible upswing in the stock market - which could be in the cards once concerns over further debt defaults in Europe ease, says a top Asia equities banker at Morgan Stanley.

The Wall Street bank says it has a number of clients waiting to make initial public offerings and it expects to see more large deals coming out of Southeast Asia, following the last wave of big IPOs from China a few years ago.

'Right now, valuations are very reasonable,' said Vincent Chui, head of Asian equity distribution for Morgan Stanley.

'For example, H shares are valued at 7.5 times earnings, and 1.4 times book value. So the question is at what level you think the market will fully discount the worst-case scenario - and I will argue that current levels are very attractive for fundamental-driven investing,' Chui told the South China Morning Post.

The amount of global capital flowing into Asian markets recently had been relatively smaller than that going into the US and European markets, Chui said. But there were growing signs Western investors were ready to pour more money into Asia, because they were concerned about Europe and the slow economic recovery in the United States.

As part of its efforts to boost investor confidence in the Asian region, Morgan Stanley is hosting its largest in-house Asian market forum in Hong Kong this week. 'Investors have two major concerns,' Chui said. 'The first is global macro-contagion, particularly that originating from the euro zone; and the second is the implications of reforms in some key policy areas in China.'

Chui said political instability in Europe had created high volatility in global markets as some investors joined a panic selling wave and others hesitated to buy until they could form a clearer picture of how countries like Greece could get through the debt crisis.