JPMorgan Asset Management and Morgan Stanley say the run-up in Chinese stocks still has room to grow, as economic growth is likely to pick up and equities are not overheated enough to trigger a meltdown. Stocks will get more support fundamentally as China’s economy probably bottoms out by the middle of this year amid loosening monetary support and tax cuts, said Marcella Chow and Chaoping Zhu, strategists at JPMorgan Asset. Meanwhile, Morgan Stanley continues to be overweight on the mainland-traded stocks, with a proprietary gauge of market sentiment still within a reasonable range that is supportive of a sustainable rally. China is home to the world’s two best-performing major equity markets. The Shanghai Composite Index has advanced 5 per cent this month on more evidence that an uptick in growth is gaining traction, with a purchasing managers’ index of the manufacturing sector rising above the level indicating expansion for the first time in four months in March. The Shanghai gauge has delivered a 30 per cent gain so far in 2019. Meanwhile, the Shenzhen Composite Index has risen 40 per cent this year. “We believe there is still potential upside to China’s stock market rally, as monetary conditions remain accommodative and the government is likely to be spending more to stimulate the economy,” Chow and Zhu at JPMorgan Asset said in a note, without giving a specific target for the Shanghai Composite. More fiscal spending, easing monetary policies that saw five cuts in banks’ reserve requirement ratio since 2018 and the government reduction on value-added and personal income taxes have raised the appetite for risk assets, prompting inflows to the stock market, according to JPMorgan Asset. Can the world’s investors trust China’s wild stock markets? Morgan Stanley said stocks will get a further boost from accelerating earnings growth in the second quarter, tax reductions and an end to earnings estimate cuts. Its proprietary gauge of market sentiment, include data on new investor registration, turnover and the number of surging stocks, was recently at 51, within the range of 20 to 70 that will sustain a rally, it said. Still, both JPMorgan Asset and Morgan Stanley cautioned against more volatility going forward, with stock valuations approaching the 10-year average on the CSI 300 index – made up of 300 leading companies on the Shanghai and the Shenzhen benchmarks – near the price target. The Shanghai Composite closed 0.1 per cent lower at 3,244.81 at the close on Monday, giving up an intraday gain of as much as 1.3 per cent in choppy trading. The Shenzhen closed down 0.6 per cent at 1,770.20. Signs have been emerging that traders have been rotating out of thematic plays to companies with solid fundamentals. Kweichow Moutai, the world’s most valuable liquor distiller trading on the Shanghai exchange, rose to a record again on Monday, its fourth time in six trading days.