(Bloomberg) -- Morgan Stanley is sticking to its cautious view of Chinese equities, despite a growing list of Wall Street bulls pricing in the nation's pledge to end a regulatory crackdown and stabilize markets.
Lingering risk factors, including a high number of property defaults, more city-wide lockdowns and geopolitical uncertainty, are likely to weaken sentiment and heighten volatility in the near term, strategists including Laura Wang and Jonathan Garner wrote in a note Thursday.
The brokerage slashed price targets for major Chinese stock indexes by as much as 21%, and remained equal-weight on the nation's equities. It now sees potential upsides of 0-5% for these gauges versus 12-30% earlier.
Read: Morgan Stanley Strategist Who Called China Rout Still Won't Buy
More Wall Street strategists have become sanguine on Chinese stocks following a string of interventions by Beijing, which turned the worst selloff since 2008 into a historic surge. Cheap valuations, easier monetary policy and the peaking of Beijing's regulatory crackdown were among reasons for the turnaround.
Still, a spate of negative regulatory developments is keeping traders on edge, reminding them of the policy risks associated with the nation's stocks. Sentiment this week has been dampened by fresh concerns over the possible delisting of Chinese stocks from U.S. exchanges and Beijing's vow for greater scrutiny of online streaming platforms.
| Index | New MS Target | Old MS Target | Change |
|---|---|---|---|
| CSI 300 | 4,460 | 5,300 | -16% |
| MSCI China | 75 | 95 | -21% |
| Hang Seng | 22,600 | 25,000 | -9.6% |
| HSCEI | 7,600 | 9,000 | -16% |
The CSI 300 index capped its worst quarter since September 2015, falling more than 14%, while the Hang Seng Index, which includes the nation's technology giants such as Alibaba Group Holding Ltd. and Tencent Holdings Ltd., is also down 7% this year.
Morgan Stanley continues to prefer onshore over offshore shares, expecting easing measures to kick in once local Covid cases peak later this year, the strategists wrote. Shanghai on Friday shifted its lockdown from the eastern half to the western half of the city amid a resurgence of the virus.
©2022 Bloomberg L.P.
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