Chinese equities should have moderate upside over the next 12 months on improved earnings, more dominance in upstream supply chains globally and yuan strength against the dollar, Morgan Stanley says. The investment bank set new price targets for 2Q 2027 at 28,400 for Hang Seng, 91 for MSCI China, 9,900 for HSCEI and 5,400 for the CSI-300, which implies upsides of 8%, 12%, 11% and 11%, respectively. "The sheer size of opportunities in China's equity market at the single stock and thematic level – fueled by solid fundamentals and promising themes... should allow investors to construct a targeted Chinese portfolio that outperforms other peers," Morgan Stanley strategists led by Laura Wang said. The investment bank names stocks with strong tech and innovation capabilities as one of its top picks, citing the closer alignment with China's 15th Five-Year Plan, as well as those showing potential to make a bigger global footprint to meet energy demand. "Other catalyst-driven stock ideas, such as U.S.-China summit beneficiaries and Southbound inclusion, are also worth considering," it added. China's highly competitive supply chain also makes the country best positioned in the high-end power and green tech space, given that energy gets more priority globally amid the Middle East conflict, the strategists said. The investment bank reckons that China's focus on tech localization with policy support, particularly in the AI, semiconductor and bio-tech space, will be buoyed by ongoing China-U.S. competition. Meanwhile, the Trump-Xi meeting later this week may also lead to some "symbolic deliverables" such as selected sets of trade relaxations, and resumption of talks on issues which include fentanyl and climate, Morgan Stanley noted. "Moderate index level upside is possible as a result of this, as investors direct attention back to China somewhat, after being occupied by the ME/Hormuz situation, as well as the AI-related supercycle that has been making some neighboring markets stand out more," it added.
