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Morgan Stanley strategists have reversed their bearish stance on Chinese stocks, aligning with other Wall Street firms in predicting a more sustainable rally fueled by China’s progress in artificial intelligence. Laura Wang and her team now recommend an equal-weight position in Chinese equities, raising their target for the MSCI China Index to 77 by the end of 2025, up from a previous target of 63. This implies a further 4% gain from Wednesday’s close, with the index already entering a bull market earlier this month.

In a note released Wednesday, the strategists described a "structural regime shift" within China’s equity market, particularly in the offshore sector. They are more confident in the sustainability of the MSCI China Index's recent performance than they were during last September’s rally.

This change marks a significant shift for Morgan Stanley, which has traditionally been cautious on Chinese stocks, and signals a broader change in how global investors may approach the Chinese market. Despite China’s monetary stimulus boosting the market in October, Morgan Stanley had only modestly adjusted its underweight position.

The new optimism is driven by advances in artificial intelligence, as showcased by DeepSeek, along with a more favorable tone from President Xi Jinping toward tech leaders. Following these developments, firms like Goldman Sachs, JPMorgan Chase, and UBS have also raised their outlooks on Chinese stocks. 

Morgan Stanley highlighted factors such as share buybacks, a shift in regulatory policy from "rectification to revitalization," and China’s AI capabilities as key drivers of their upgraded outlook. Additionally, the firm raised its targets for the Hang Seng China Enterprises Index to 8,600 from 6,970, and the Hang Seng Index to 24,000 from 19,400. The forecast for the CSI 300 remained unchanged at 4,200.

Paraphrasing text from "Bloomberg"all rights reserved by the original author