Morgan Stanley(US:MS)2025-05-23 05:25Investment Rating - The report maintains an equal-weight rating on China within the Emerging Markets/Asia Pacific ex-Japan framework, indicating a balanced approach to investment opportunities in the region [15]. Core Insights - The sentiment for A-shares has declined, with the weighted Morgan Stanley A-share Sentiment Indicator (MSASI) dropping to 61%, a decrease of 10 percentage points from the previous cutoff date [2][6]. - Despite the drop in sentiment, index targets for Chinese equities have been raised due to sustained structural improvements and positive developments in tariffs and earnings [14]. - The report suggests a preference for offshore investments over A-shares, citing a stronger positioning to benefit from current market conditions [15]. Summary by Sections A-Share Market Sentiment - A-share investor sentiment has decreased, with the simple MSASI falling to 49%, a drop of 13 percentage points compared to the prior cutoff date [2]. - Average daily turnover for various segments, including ChiNext and A-shares, has also seen declines, with ChiNext turnover down by 20% [2]. Macro Economic Outlook - The economics team has revised GDP growth forecasts for 2025 and 2026 to 4.5% and 4.2% respectively, reflecting stronger tracking for 2Q GDP due to reduced tariff headwinds [4]. - However, domestic investment and consumption have missed expectations, with capital expenditure slowing broadly, particularly in manufacturing [4]. Property Market Insights - Property sales have shown a deeper year-on-year decline in April, with construction activity worsening, indicating potential for a faster decline in the physical market in the coming months [5]. Investment Strategy - The report emphasizes a focus on high-quality large-cap internet and tech leaders while underweighting sectors such as energy and real estate [15]. - The structural improvements in China's equity market since the second half of 2024 are believed to remain intact, despite broader macro-level recovery challenges [13][14].