Global Times｜More foreign banks upbeat on outlook for Chinese equities
A growing number of foreign financial institutions are becoming increasingly upbeat on Chinese equities, citing a stable economic recovery following a raft of incremental policies and the rapid rise of artificial intelligence (AI) firm DeepSeek that has prompted a re-evaluation of Chinese tech shares.
"We believe a structural regime shift is finally happening within China's equity market, especially the offshore space, leading to sustainable return on equity and valuation recovery," Morgan Stanley analysts, including Chief China Equity Strategist Laura Wang, wrote in a note seen by the Global Times on Thursday.
Citing factors such as the affirmation of government support for the private sector, the analysts expect the MSCI China Index to reach 77 by the end of 2025, which would be 22 percent higher than their earlier target, according to the note. Noting that they are more convinced that the recent improvement in the MSCI China's performance can be sustained, the analysts said they are cautiously more optimistic about China's stock markets.
The MSCI China Index includes large and mid-cap Chinese companies, with index constituents including A shares, H shares, red-chips and foreign listed shares.
Eva Lee, head of Greater China Equities at UBS Global Wealth Management Chief Investment Office, said that "we maintain a positive outlook on the Chinese internet sector given generally improving fundamentals, attractive valuations, encouraging shareholder returns, and growing longer-term AI tailwinds."
DeepSeek's successful launch of its R1 model on January 20 quickly grabbed the market's attention with its surprising performance and cost efficiency. "We believe the breakthroughs can eventually be leveraged through many AI applications that do not necessarily require the highest levels of computation, contributing to broader growth in the industry," Lee wrote in a note.
Morgan Stanley and UBS are only the latest foreign financial institutions that have expressed optimism on China's stock markets. HSBC, Goldman Sachs and Deutsche Bank have also made similar assessments.
DeepSeek's rise plays an important role in driving the A-share and H-share markets, as it shows global investors China's advantages in tech innovation and remove many foreign investors' doubts, Yang Delong, chief economist at Shenzhen-based First Seafront Fund, told the Global Times on Thursday.
The fundamental reason behind their confidence in China's stock market is the sustained recovery of the world's second-largest economy thanks to pro-growth policies, especially incremental policies that have been rolled out since September 2024, Yang said.
In January, equities struggled overall in emerging markets except China, which enjoyed $2 billion of inflows, Reuters reported on Tuesday, citing a report from the Institute of International Finance.
In another sign of growing interests in Chinese equities, so far in February, foreign financial institutions conducted investment research on more than 60 A-share companies from industries including electronic equipment and instruments, integrated circuits and application software, the Shanghai Securities Journal reported on Thursday, citing data from market information provider Wind.
Chinese stocks closed mixed on Thursday, with the benchmark Shanghai Composite Index down 0.02 percent at 3,350.78 points. The Shenzhen Component Index closed 0.2 percent higher at 10,794.55 points. The combined turnover of stocks covered by these two indices was about 1.76 trillion yuan, expanding 35.6 billion yuan compared with the previous trading day.
Chinese officials have also taken concrete measures to stabilize the capital market. Last month, six Chinese government agencies, including the China Securities Regulatory Commission, unveiled a plan to encourage medium- and long-term funds to enter the capital market.
The plan aims to increase the proportion and stability of A-share investment in the portfolios of commercial insurance companies, and improve the investment management mechanism of the national social security fund and the basic pension insurance fund.
China will also encourage foreign companies to make equity investment in China and guide high-quality foreign capital toward long-term investment in China's publicly listed companies, according to an action plan for stabilizing foreign investment that was unveiled on Thursday.
With the strengthening of domestic policies, it is expected that the macro-economy will notably improve in 2025, which will help boost listed companies' profit growth and drive a market rebound, Yang said, noting that China's stock markets will likely attract more overseas capital this year.