Global Investment Banks Boost China Equity Index Targets Amid Renewed Optimism
Table of Contents
You might want to know
- Why are global investment banks optimistic about Chinese assets?
- What factors are driving the upgraded outlook for China’s stock indices?
Main Topic
This week, four major international investment banks expressed a positive outlook on the Chinese market, as evidenced by upgraded target points for major Chinese equity indices. Among these, Morgan Stanley and JPMorgan have revised their expectations for the MSCI China Index to higher levels by 2025. Goldman Sachs and UBS note increasing interest and optimism among international investors regarding China's economic recovery.
On March 25, Morgan Stanley's China Chief Equity Strategist, Wang Ying, and her team published a report raising their target points for several major Chinese indices by the end of 2025. They reiterated their positive sentiment on the Chinese market, driven by improved earnings expectations and potential valuation adjustments. The revised target points include 25,800 for the Hang Seng Index, 9,500 for the Hang Seng China Enterprises Index, 83 for the MSCI China Index, and 4,220 for the CSI 300 Index. This optimism is based on three key reasons: better-than-expected Q4 2024 earnings reports, upward revisions in earnings forecasts, and the likelihood of valuations aligning more closely with emerging market norms.
Morgan Stanley’s decision marks their second upward revision of Chinese index forecasts in just over a month. Previously, on February 19, they upgraded their rating of the MSCI China Index to Equal Weight, predicting a sustained rebound driven by technological advancements in China. Target points for 2025 were set at 24,000 for the Hang Seng Index, 8,600 for the Hang Seng China Enterprises, and 77 for the MSCI China Index.
JPMorgan released a report on March 26 by their Chief Asia and China Equity Strategist, Liu Mingdi, and the team, adjusting the bearish/base/bullish scenario target points for the MSCI China Index from 58/67/76 to 70/80/89 respectively. They also upped the ratings for the consumer discretionary and healthcare sectors within the MSCI China Index from Neutral to Overweight.
Similarly, on March 26, Liu Jinjin, Goldman Sachs' Chief of China Equity Research, observed that after a 20% rise in Chinese equities this year, further increases driven by fundamentals are anticipated. However, external risk factors and profit-taking pressures might slow down the pace. Previously, Goldman Sachs has elevated their 12-month MSCI China Index target to 85, attributing this to the growth potential from AI advancements. This account factors in a 12x price-to-earnings ratio by 2025 against a current 11.5x, with 9% per-share earnings growth forecast, compared to an 8% consensus.
The bullish perspectives are significantly underpinned by improvements in China's market fundamentals. Morgan Stanley highlights a breakout performance for the first time in over three years, attributed to proactive corporate strategies and accelerated investments in technology and AI. Consequently, they have upgraded their 2025 and 2026 earnings growth forecasts for the MSCI China Index to 7% and 9% respectively. They expect this index’s valuation to converge with that of the MSCI Emerging Markets Index, eliminating the long-standing discount.
JPMorgan suggests Chinese equities hold a relative advantage benefitting from favorable policies, a positive earnings growth trajectory, and reasonable valuations. The widespread adoption of AI technologies, like DeepSeek, is expected to facilitate cost savings, and its profit-enhancing effects are predicted to manifest by 2025. Additionally, the stabilization of China's real estate market is likely to boost consumer confidence.
As reported on March 25, Meng Lei, China Equity Strategy Analyst at UBS, predicted a restored profit margin and low earnings base in downstream sectors for A-shares, with the CSI 300 Index’s per-share earnings likely growing from 1% in 2024 to 6% in 2025. “Historically average valuations are not the ceiling, suggesting further upside in market valuations for 2025.”
Key Insights Table
| Aspect | Description |
|---|---|
| Optimistic Outlook | Major banks are positive about China's market prospects. |
| Key Drivers | Improved earnings, potential valuation adjustments, policy support. |
| Investment Interest | Growing global interest, focused on AI and tech sectors. |
Afterwards...
Looking ahead, advancements in technology and artificial intelligence represent promising areas for future exploration. These developments promise to revolutionize various sectors, offering opportunities for renewed growth and innovation. By fostering strategic investments in these technologies, countries like China can continue to lead in the creation and application of transformative solutions. Ensuring supportive policies and maintaining open, collaborative international dialogues will be crucial in harnessing these advancements for broader economic benefits.