Morgan Stanley raises MSCI China, Alibaba price targets in second bullish call on Chinese stocks in a month
- The US investment bank expects the MSCI China Index to climb 14 per cent to 80 by the end of 2023, compared with its previous target of 70
- Analyst Gary Yu also lifted the target price for Alibaba’s ADR to US$150 from US$100, after raising it for the first time in two years in November
Morgan Stanley has lifted the target for a major Chinese offshore stocks index by 14 per cent this year, with the US investment bank’s latest bullish call coming just a month after it upgraded the rating on Chinese onshore equities to overweight.
The MSCI China Index, which tracks 714 companies listed at home and abroad with a combined market valuation of US$2 trillion, will probably rise to 80 by the end of 2023, compared with the previous target of 70, analysts led by Laura Wang at Morgan Stanley wrote in a research note on Monday.
The bank also raised the price target for Alibaba Group Holding’s American depositary receipts (ADRs) by 50 per cent and China’s growth target for this year by 0.3 percentage point.
“We believe the market is underappreciating the far-reaching ramifications of reopening and the possibility that a robust cyclical recovery can occur despite lingering structural headwinds,” Wang said in the note. “Economic, regulatory and Covid policies are aligned for the first time in four years, likely resulting in stronger spillover from existing and upcoming easing.”
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Major global investment banks have turned bullish on Chinese stocks since Beijing scrapped the rigid pandemic restrictions in November and shifted the focus to economic growth. Goldman Sachs expects the MSCI China Index to rise by 15 per cent from its current level, while UBS Group said that earnings growth for Chinese companies listed onshore will accelerate to 15 per cent this year from 4 per cent in 2022.
It is the second time in a month that Morgan Stanley has made a bullish call on Chinese stocks. On December 4, the bank called a buy on China stocks, ending almost two years of neutral recommendation.
Morgan Stanley’s analyst Gary Yu lifted the target price for Alibaba’s ADR to US$150 from US$100 on Sunday, after he raised it for the first time in two years last November. Similarly, Nomura lifted the target by more than 25 per cent to US$138, as it expects the e-commerce giant’s earnings to improve this year.
The MSCI China Index rose 2.3 per cent to 70.99 on Monday, taking its gain to 49 per cent from an 11-year low on October 31. The gauge tumbled 24 per cent in 2022 after a 22 per cent loss in the previous year, wiping out US$3 trillion in market value in this period.
China’s policy loosening has gained traction in the new year, with the government ramping up efforts to counter the fallout of rising Covid infections after the easing of restrictions. The People’s Bank of China has allowed mortgage rates on first home purchases to be cut in cities with declining property prices, while the head of the banking regulator has signalled an end to the crackdown on the tech industry.
Morgan Stanley lifted the 2023 growth forecast for China to 5.7 per cent from 5.4 per cent.
“The prospect of rapidly accelerating GDP and earnings growth from a very low base, as well as reductions in domestic policy risk internally and geopolitical risk externally, are likely to drive a further valuation re-rating,” said Wang in the report. “China equities are poised to lead global equity markets with further notable outperformance of regional and global peers.”
