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The bank’s base case forecasts an 8 per cent gain to 28,400 for Hong Kong’s Hang Seng Index by the second quarter of 2027, as well as an 11 per cent rise in the Hang Seng China Enterprises Index and a 12 per cent increase for the MSCI China Index, according to its report on Wednesday.
The bull case stretches to 27 per cent for the MSCI China gauge if the bilateral relationship improves and China breaks out of its deflation cycle.
“We believe moderate index level upside is possible” based on the truce continuing, said the investment bank’s equity strategists. Investors would “direct attention back to China somewhat, after being occupied by the Middle East/Hormuz situation”, as well as the AI-related “supercycle” that had been making neighbouring markets such as South Korea, Taiwan and Japan “stand out more”, they said.
The bank’s forecast favours mainland-listed shares over offshore Chinese stocks, arguing that most of China’s high-end manufacturers and hard-technology firms are listed onshore. It highlighted a wave of strategic IPOs including memory makers Yangtze Memory Technologies Co (YMTC) and ChangXin Memory Technologies (CXMT), as well as Unitree Robotics.
Morgan Stanley also said the state-backed “national team” funds had built up a buffer of about US$80 billion that could be redeployed to support the valuations of mainland-listed shares.
